Mortgage Terminology

At times, the world of mortgages can be daunting, with its host of confusing buzzwords and unfamiliar terminologies. Her, our help!

Learning mortgage terminology before applying is super valuable. Our page explains keywords like interest rate, down payment, points, and amortization. Understanding jargon enables you to navigate the process confidently.

Adjustable-Rate Mortgage (ARM)
A type of mortgage loan with an interest rate that can change periodically, usually based on market conditions. The interest rate can fluctuate, which can result in varying monthly payments over the loan term. Amortization: The process of gradually paying off a mortgage loan over time through regular payments, which include both principal and interest. Amortization schedules are used to determine the distribution of payments.

Annual Percentage Rate (APR)
The total cost of borrowing, expressed as an annual rate. It includes the interest rate, loan origination fees, and other costs associated with the mortgage.

Appraisal
An evaluation of a property’s value conducted by a licensed appraiser. Lenders use appraisals to determine the property’s fair market value before approving a mortgage loan.

Closing Costs
The fees and expenses incurred during the mortgage closing process, including loan origination fees, title insurance, appraisal fees, and other charges.

Closing Disclosure
A document provided to borrowers before closing, outlining all the final terms and costs of the mortgage loan. It helps borrowers understand the financial aspects of their loan.

Down Payment
The initial payment made by the borrower when purchasing a property. It is expressed as a percentage of the home’s purchase price and represents the borrower’s equity in the property.

Equity
The difference between the current market value of a property and the outstanding balance on the mortgage. Equity represents the owner’s financial interest in the property.

Escrow
An account held by the lender to manage and disburse funds for property taxes, insurance, and other related expenses on behalf of the borrower.

FHA Loan
A mortgage loan insured by the Federal Housing Administration (FHA), typically requiring a lower down payment and accommodating borrowers with lower credit scores.

Fixed-Rate Mortgage
A mortgage loan with a constant interest rate that remains unchanged throughout the loan term. This provides borrowers with predictable monthly payments.

Interest Rate
The percentage of the loan amount charged by the lender as interest. It determines the cost of borrowing and affects the monthly mortgage payment.

Jumbo Loan
A mortgage loan that exceeds the conforming loan limit set by government-sponsored enterprises like Fannie Mae and Freddie Mac. Jumbo loans are typically used for high-value properties.

Mortgage
A loan taken to finance the purchase of a property. The property serves as collateral for the loan.

PMI (Private Mortgage Insurance)
Insurance required by lenders for borrowers who make a down payment of less than 20%. It protects the lender in case of loan default.

Pre-Approval
A preliminary assessment of a borrower’s creditworthiness to determine the maximum loan amount they can qualify for. It provides confidence to homebuyers during the house hunting process.

Principal
The original loan amount borrowed, excluding interest. Over time, as payments are made, the principal balance decreases.

Refinancing
The process of replacing an existing mortgage with a new one, often to obtain better interest rates or terms.

Title Insurance
Insurance that protects homeowners and lenders against losses related to property title disputes or ownership issues.

VA Loan
A mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA), available to eligible veterans and service members, often with favorable terms and no down payment requirement.

The information contained in this section is for educational purposes only. Sociable Mortgage L.L.C. does not provide any legal, financial, or other advice. The products and services mentioned may not be suitable for you. If you have any doubts you should contact an independent financial advisor.