Understanding Mortgage Terminology

Often one of the most intimidating parts of the home buying process is applying for a mortgage.  To help diffuse some of the mystery surrounding this step, we've provided definitions for some of the most commonly used mortgage terminology.

• Adjustable Rate Mortgage (ARM) - A type of loan where the interest rate changes periodically based on a standard financial index
• Closing Costs - Costs to both the buyer and seller that occur during the home buying process. This includes items such as fees, insurance, escrow and taxes
• Down Payment - A portion of the purchase price of the home that is paid up front without financing
• Escrow - An account where money for taxes and insurance is held until it needs to be paid
• Fixed Rate Mortgage - As opposed to an ARM, a Fixed Rate Mortgage has an interest rate that does not change for the duration of the mortgage
• Good Faith Estimate - An estimate of closing costs provided to the buyer from the lender
• Principal - The amount of debt that needs to be paid, not including interest
• Private Mortgage Insurance (PMI) - Sometimes required if the buyer cannot provide at least a 20% down payment, PMI protects the lender against possible default

Which financing terms do you struggle with the most?  We can help provide information to make the process less intimidating!