Payment cap
Limit on the amount by which a borrower’s ARM payments may increase, regardless of rise in interest rates. This may result in negative amortization.

Payment cap (ARM)
A pre-determined amount that establishes the maximum by which the payment can increase, irrespective of increases to the interest rate.

Payment change date
Dates upon which the payment amount is subject to change. Products featuring “negative amortization” typically will include a payment change date which differs from the interest rate change date in frequency.

Per diem interest
Interest calculated per day. Depending on the day of the month on which closing takes place, you’ll have to pay interest from the date of closing to the end of the month.

Periodic interest cap
An interest cap that restricts how much adjustable-rate mortgage rates may increase or decrease on pre-determined change dates.

Permanent loan
A long-term mortgage of 10 years or more.

PITI
Also called “monthly housing expenses,” principal, interest, taxes and insurance are the components of a monthly mortgage payment.

PMI
See Private Mortgage Insurance.

Points (or Discount points)
Interest prepaid to the lender at closing. Each point is equal to 1 percent of the loan amount. Paying more points at closing generally reduces a loan’s interest rate and monthly payments..

Power of attorney
Legal document authorizing one person to act on behalf of another.

Prepaid expenses
Taxes, insurance and assessments paid in advance of their due dates, including at closing.

Prepaid interest
Charged to a borrower at closing to cover interest on the loan between the closing date and the end of that month.

Prepayment
A full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property or refinances the existing loan.

Pre-payment penalty
Some ARM loans contain a provision against pre-payment without penalty. Terms of pre-payment penalty clauses vary from product to product, investor to investor, and state to state. Many states and even local municipalities have, or are contemplating, enacting legislation against pre-payment penalties.

Pre-qualification
The process of determining how much money a prospective homebuyer may borrow, prior to application for a loan.

Primary mortgage market
Includes banks, savings and loans, credit unions, and mortgage bankers who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to lenders such as FNMA in the secondary mortgage market.

Prime rate
Lowest commercial interest rate charged by a bank on short-term loans to its most credit-worthy customers.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
Insurance purchased by a buyer on a conventional loan when a down payment is less than 20 percent of the purchase price to protect the lender against default.

Profit and loss statement
A financial statement showing revenue, expenses and profits over a period of time.

Property tax
A government tax based on the market value of a property.

Purchase agreement
A contract signed by buyer and seller stating the terms and conditions of a home sale.