Before you embark on the process of obtaining a mortgage, it is important that you arm yourself with some of the basic terms used throughout the mortgage procedure. To get you started, some of the many common mortgage terms you'll hear include:

Adjustable Rate Mortgage - a mortgage with an interest rate that is subject to periodic adjustments, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted.
Amortization - repayment of a mortgage debt with periodic payments of principal and interest, calculated to retire the obligation at the end of a selected period of time. An amortization schedule is a table showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment is made.
Annual Percentage Rate (APR) - the APR expresses the true rate of interest charged for the loan, on a yearly, annualized basis, because it consists of all the financing costs of the transaction. The APR is higher than the actual mortgage interest rate because of related financing costs (such as discount points, origination fees, mortgage insurance, prepaid interest, etc.).
Balloon Mortgage/Payment - usually a short-term fixed rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Caps - limits on the amount which monthly payments can increase and are typically associated with adjustable rate mortgages. An interest rate cap limits the amount the interest rate can change, one cap limiting the amount of the yearly adjustment, while another limits the interest rate increase over the life of the loan.
Closing Costs - costs and fees associated with the official change in ownership of the property and with obtaining your mortgage that are assessed at the closing or settlement. Closing costs include such required fees as certifications, insurance, taxes and other necessary fees.
Commitment - a written agreement between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.
Debt-to-Income Ratio - the ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans).

Earnest Money - Money given by the buyer with an offer to purchase as evidence of good faith, and further considered a portion of the down payment.
Escrow - a special account set up by the lender in which money is held to pay for taxes and insurance. Escrow can also refer to a third party who carries out the instructions of both the buyer and seller to handle the paperwork at closing.
Fixed Rate Mortgage - a mortgage with an interest rate that remains constant for the life of the loan. The most common fixed-rate mortgage is repaid over a period of 30 years; 15-year fixed-rate mortgages are also available.
Index - an economic indicator, usually a published interest rate, that determines changes in the interest rate of an ARM. ARM rates are adjusted to reflect changes in the index. the margin is the amount a lender adds to the index to establish the actual interest rate on an ARM.
Interest - the sum paid for borrowing money, which pays the ender's costs of doing business.
Loan Origination Fee - the fee charged by a lender to prepare all the documents associated with your mortgage.
Loan-to-Value Ratio - the relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Mortgage Insurance - an insurance policy the borrower buys to protect the lender from non-payment of the loan. Private mortgage insurance policies are usually required if you make a down payment that is below 20% of the appraised value of the home.
PITI (Principal, Interest, Taxes and Insurance) - the four components that (for most homeowners) are included in the monthly mortgage payment. Principal and interest are the portions of the payment assigned to repay the mortgage itself; taxes and insurance are paid by your lender into a special escrow account to pay for homeowners insurance and property taxes.
Points (Loan Discount Points) - prepaid interest on a mortgage that is usually paid at the time of closing. Each point is equal to one percent of the total amount of a mortgage (one point on a $100,000 mortgage is $1,000). Different combinations of points and interest rates are typically offered and vary by loan program; generally, the lower the interest rate, the more points you will pay at settlement.
Principal - the amount of debt, not including interest, left on a loan; also, the face amount of the mortgage.
Title Insurance - an insurance policy which insures you against errors in the title search, essentially guaranteeing you and the lender's financial interest in the property.
Underwriting - the process of deciding whether to make a loan based on credit, employment, assets and other factors.