5 Basic Mortgage Terms You Need to Learn

A home of your very own—words you’ve been dreaming to hear for years. If you’re currently in the process of turning your dream into a reality, you probably know the home buying process is full of confusing terminology. As you pave your way towards your very own home, it will help you to know these 5 basic mortgage terms.

1. Adjustable rate mortgage (ARM)

An ARM is a type of mortgage loan which has a set initial interest rate that is locked for a certain period of time. After the set time elapses the interest rate will change or adjust periodically, slightly increasing or decreasing your monthly payment.

2. Fixed rate mortgage

When you opt for a fixed rate mortgage your interest rate is locked in for the life of the loan, whether that’s for 10 years or 40 years. This means your monthly payment will remain the same unless you decide to refinance down the road.

3. Amortization

This is a big, fancy word meaning the payment schedule for your loan. Normally the amortization will include the amount of the loan, the interest rate paid, and the term, or length, of the loan.

4. Annual percentage rate (APR)

The APR is a measurement of the total cost of the loan including the interest and loan fees which will be expressed as a yearly percentage rate. Knowing a lender’s APR will be helpful when you compare the cost of different loans since all lenders use the same calculation.

5. Equity

When you hear the word “equity” thrown at you, all it means is the value of your property minus the remaining mortgage balance. Equity is normally gained as you make payments towards your principal loan and as the market appreciates. Equity can be quickly increased by making a slightly higher monthly payment toward your principal each month.

Learn the lingo

Buying a home should be exciting, not confusing. Like any puzzling process it helps to learn and understand the lingo. Once you learn these 5 basic mortgage terms you can move on, learn a few more, and then not be so lost during your home buying journey.

What basic mortgage terms do you want to learn?