Demystify mortgage terms with this comprehensive glossary! From amortization to underwriting, this guide simplifies key concepts like APR, escrow, LTV, and more, helping you confidently navigate the home-buying process. Perfect for first-time buyers or anyone seeking clarity on mortgage jargon.

‍

Amortization
‍

The process of gradually paying off a loan through regular payments over time. Each payment includes both principal (the amount borrowed) and interest.
‍

Annual Percentage Rate (APR)
‍

The total cost of borrowing, expressed as a yearly percentage. APR includes the interest rate plus any additional fees or costs, providing a more accurate picture of the loan's overall cost.
‍

Appraisal
‍

A professional evaluation of a property's market value, typically conducted by a licensed appraiser. Lenders require appraisals to ensure the loan amount aligns with the home’s value.
‍

Adjustable-Rate Mortgage (ARM)
‍

A type of mortgage with an interest rate that can change periodically, usually in relation to an index. ARMs typically have an initial fixed-rate period, after which the rate adjusts at specified intervals. 
‍

Closing Costs
‍

The fees and expenses you pay at the closing of a real estate transaction, such as loan origination fees, appraisal fees, and title insurance. These costs are typically 2-5% of the loan amount.
 
‍

Debt-to-Income Ratio (DTI)
‍

A measure of a borrower’s monthly debt payments compared to their gross monthly income. Lenders use this ratio to determine a borrower’s ability to repay a loan.
‍

Down Payment
‍

The initial payment made when purchasing a home, typically expressed as a percentage of the home's purchase price. For example, a 20% down payment on a $300,000 home would be $60,000.
 
‍

Escrow
‍

A financial arrangement in which a third party holds funds until certain conditions are met. In a mortgage, escrow often refers to the account used to pay property taxes and homeowners insurance.
 
‍

Equity
‍

The portion of a property that the homeowner truly owns, calculated as the property's market value minus any outstanding mortgage balance.
 
‍

Fixed-Rate Mortgage
‍

A mortgage with an interest rate that remains the same for the entire term of the loan, providing predictable monthly payments.
 
‍

Homeowners Insurance
‍

Insurance that protects the homeowner and lender from damage to the property due to events like fire, theft, or natural disasters. Lenders usually require homeowners insurance.
 
‍

Interest Rate
‍

The percentage charged on a loan, representing the cost of borrowing. For mortgages, it can be fixed or adjustable.
 
‍

Jumbo Loan
‍

A mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Jumbo loans often have stricter requirements and higher interest rates.
 
‍

Loan Estimate (LE)
‍

A document provided by the lender that details the estimated interest rate, monthly payment, and closing costs for a particular mortgage. 
‍

Loan-to-Value Ratio (LTV)
‍

A measure of the loan amount relative to the appraised value or purchase price of the property. For example, if you borrow $80,000 for a $100,000 home, the LTV is 80%. 
‍

Mortgage Insurance
‍

Insurance that protects the lender if the borrower defaults on the loan. Typically required for loans with a down payment of less than 20%. 
‍

Mortgage Note
‍

A legal document in which the borrower agrees to repay the mortgage loan under the agreed-upon terms. It includes details about the loan amount, interest rate, and payment schedule.
‍

Origination Fee
‍

A fee charged by the lender for processing a mortgage application, usually expressed as a percentage of the loan amount. 
‍

Points
‍

Also known as discount points, these are fees paid at closing to lower the interest rate on the mortgage. One point is equal to 1% of the loan amount.
‍

Principal
‍

The original loan amount or the remaining balance on the loan, excluding interest. 
‍

Private Mortgage Insurance (PMI)
‍

Insurance required by lenders on conventional loans with less than a 20% down payment. PMI protects the lender if the borrower defaults on the loan. 
‍

Refinance
‍

The process of replacing an existing mortgage with a new loan, typically to obtain a better interest rate or different loan terms. 
‍

Title Insurance
‍

Insurance that protects against potential issues with the property title, such as liens or ownership disputes. Title insurance is required by most lenders.
‍

Underwriting
‍

The process by which a lender reviews a borrower’s financial information, such as credit score and income, to assess the risk of granting a loan. 
‍

Variable Interest Rate
‍

An interest rate that can change over time, often tied to a specific index. In an ARM, the rate can adjust after an initial fixed period.
‍

Yield Spread Premium (YSP)
‍

A fee paid by a lender to a mortgage broker in exchange for a higher interest rate on the loan. This fee can sometimes help cover closing costs.

‍

Understanding mortgage terminology is a crucial step toward making informed decisions in your home-buying journey. With this glossary as your guide, you'll have the knowledge to confidently communicate with lenders and navigate the process like a pro. Remember, knowledge is power—equip yourself and take the next step toward your dream home.