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Mortgage Terminologies
We're here to assist you in quickly understanding the mortgage process. Please find below simplified explanations of common terms related to mortgages
Down Payment
The initial payment made by the buyer towards the total purchase price of the property. It is usually a percentage of the property's value.
Interest Rate
The percentage charged by the lender for borrowing the funds. It determines the amount of interest you will pay over the life of the loan.
Amortization
The process of gradually paying off the loan through regular monthly payments, which include both principal (the loan amount) and interest.
Principal
The original amount borrowed for the mortgage, excluding interest.
Term
The length of time you have to repay the loan. Common terms include 15 years and 30 years.
Closing Costs
Fees and expenses associated with finalizing the mortgage, including appraisal fees, attorney fees, title insurance, and more. These costs are typically paid at the loan closing.
Escrow
An account managed by a third party where funds are held to cover property taxes, insurance premiums, and other expenses related to the property. The lender collects a portion of these costs with each monthly mortgage payment and pays them on your behalf when they become due.
Pre-approval
The process of obtaining preliminary approval for a mortgage loan based on an evaluation of your creditworthiness, income, and other financial factors. It gives you an idea of the loan amount you may qualify for, helping you shop for homes within your budget.
Private Mortgage Insurance (PMI)
Insurance coverage required for conventional loans with a down payment of less than 20% of the home's value. PMI protects the lender in case the borrower defaults on the loan.
Refinancing
The process of replacing an existing mortgage with a new loan, typically to take advantage of lower interest rates, reduce monthly payments, or change loan terms.