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To help you get a handle on financing terminology before you buy a home, we have defined 10 commonly used mortgage terms.

1. Adjustable Rate Mortgage (ARM Loan): An ARM Loan has an initial interest rate that is often lower than a conventional fixed-rate mortgage. The lower initial interest rate associated with an ARM loan translates to a lower initial monthly payment. The tradeoff, however, is the potential for a higher payment if interest rates go up as the ARM loan progresses.
2. Annual Percentage Rate (APR): The APR for your home loan is an annual calculation that includes the interest rate quoted by your mortgage company plus additional home loan costs such as origination fees and points. When you buy a home, the closing costs might include loan origination fees, escrow payments, title insurance, attorney fees and even discount points paid to lower your loan interest rate.
3. Escrow: During the home loan process, a neutral third party known as Escrow holds documents and money (including earnest money deposits) for safekeeping until the real estate transaction is complete.
4. Fixed-Rate Mortgage: A conventional fixed-rate mortgage means that your interest rate will be the same for the entire life of the home loan.
5. Loan to Value Ratio (LVR): When you buy a home, this term refers to the amount of financing you are getting in relationship to your new home value. For example, an $80,000 mortgage on a $100,000 home has an LVR of 80 percent.
6. Lock-In: Home mortgage interest rates vary from day to day. While you buy a home and secure financing, you may decide to lock in a particular interest rate with your lender. This lock-in guarantees that your home loan will be processed with this rate, even if interest rates rise before your loan closes.
7. Points: There are two types of points that can be applied to a home mortgage. Discount points are used to reduce the loan interest rate and origination points may be added to cover the expenses associated with processing a loan. One point equals one percent of the loan amount.
8. Private Mortgage Insurance (PMI): When you finance more than 80 percent of your new home value, your lender will require you to purchase PMI. This protects the lender against loss if you default on your home loan. Your monthly PMI payment is added to the cost of your mortgage payment.
9. Title Insurance: A home mortgage requirement, title insurance protects both the buyer and the seller against legal defects in a home title. If a problem occurs, the title company pays the associated legal fees to correct the situation.