Commonly Used Mortgage Terms
Mortgage: A mortgage is a loan you obtain to pay for a home. The home is used for collateral on the loan.
Mortgage Pre-Approval: the lender provides the borrower with a confirmation of their qualified mortgage loan amount.
Interest Rate: The amount the bank charges you to use their money. It is a percentage based on current economic indicators, including your credit score and the type and length of the loan.
Principal: The amount the borrower agrees to pay the lender when the loan is due, not including interest.
Annual Percentage Rate: the true cost of your mortgage loan: interest plus fees and any other one-time costs.
Term: The amount of time the loan is financed for, typically between 15-30 years.
Amortization: Principal and interest together comprise most of your payment; the total is then divided into equal payments over the life of the loan
Down Payment: A portion of the home’s selling price that needs to be paid upfront (typically 20% of the purchase price of a home). The down payment allows you to start building equity in the home and will reduce your monthly payments.
Earnest Money: A personal check you submit along with the purchase offer to show the seller that you are serious about buying the property.
Closing Costs: These costs may include title insurance, escrow fees, lender charges, real estate commissions, recording fees and more.
Equity: The difference between the home’s fair market value and the outstanding loans on the property.
Escrow: An account held in the borrower’s name to pay obligations such as property taxes and insurance premiums. A portion of each mortgage payment is added to this account.
Title Insurance: protects the buyer and the lender against issues with the title upon transfer of property ownership.
Private Mortgage Insurance (PMI): This is typically required for down payments of less than 20%.