Effective Rate: We tried to write this in a way that was easy to understand, but we failed. So the following definition is from The Mortgage Professor– In one context it refers to a measure of interest cost to the borrower that is identical to the APR except that it is calculated over the time horizon specified by the borrower. The APR is calculated on the assumption that the loan runs to term, which most loans do not. In most texts on the mathematics of finance, however, the “effective rate” is the quoted rate adjusted for intra-year compounding. For example, a quoted 6% mortgage...

Equity: The equity you have in your home is the difference between how much your home is worth and how much you owe the bank. For example, if your home is worth $100,000 and your mortgage is $75,000, that means you have $25,000 in equity or 25% equity. When you take out a home equity loan, you are borrowing against the equity that you have in your home. If you owe $75,000 and your house is only worth $65,000, you have negative equity (a.k.a. you are upside-down). That means you would not be able to take out a home equity loan, because you have no home equity as collateral. Go back to what you were...

Escrow: One of the first steps in buying a house is to open an escrow account. Loosely defined, to put money into escrow means that a third party (in Arizona, it would be a title company) would hold certain monies and then distribute them once the the escrow closes (COE). Usually, the only money that goes into an escrow account (for an Arizona mortgage loan anyway) is the good faith deposit. Go back to what you were reading…

Fannie Mae: From Wiki– Fannie Mae buys loans from approved mortgage lenders, either for cash or in exchange for a mortgage-backed security that comprises those loans and that, for a fee, carries Fannie Mae’s guarantee of timely payment of interest and principal. By purchasing the mortgages, Fannie Mae provides mortgage lenders with fresh money to make new loans. This gives the United States housing markets added liquidity. In order for Fannie Mae to provide its guarantee to mortgage-backed securities it issues, it sets the guidelines for the loans that it will accept for purchase, and...

First Mortgage: The first mortgage on your home is your primary mortgage. It is the mortgage in first lien position. If you only have one mortgage, this is your first mortgage. If you have more than one mortgage on your home– for example, a home equity loan or a pool loan– these are second mortgages. Because the term “taking out a second mortgage” has negative connotations in many people’s minds, second mortgages have undergone a make-over. Now they are called “lines of credit,” or HELOC loans, or pool loans. But if you have any of these things, than you have a...