Explaining Mortgage Terms and Terminology
If you’re in the process of applying for a mortgage, you may have come across some unfamiliar terms and jargon. Understanding these terms is crucial to making informed decisions about your mortgage, so it’s important to familiarize yourself with the language of the industry.
Here are some common mortgage terms and their meanings:
- Principal: This is the amount of money you borrow from your lender. Your monthly mortgage payments will go towards paying off both the principal and the interest.
- Interest: Interest is the fee you pay your lender for borrowing money. The interest rate on your mortgage will determine how much you pay in interest over the life of your loan.
- APR: The APR (annual percentage rate) is the total cost of your mortgage, including both the interest and any fees, expressed as a yearly rate. The APR is a good way to compare the overall cost of different mortgage offers.
- Pre-approval: Pre-approval is a process in which a lender evaluates your financial situation and provides you with an estimate of how much they are willing to lend you. Pre-approval can make you a more competitive buyer when you’re ready to make an offer on a home.
- Pre-qualification: Pre-qualification is similar to pre-approval, but it is less formal and does not involve as much documentation. Pre-qualification can give you a rough idea of how much you might be able to borrow, but it is not a guarantee of approval.
- Closing costs: Closing costs are fees associated with getting a mortgage, such as appraisal fees, attorney’s fees, and title insurance. These costs are typically paid at the closing meeting, when you sign the mortgage documents and take ownership of your home.
- Escrow: Escrow is a process in which a third party holds onto funds or documents related to a transaction, such as the down payment on a home. The funds or documents are released when certain conditions are met, such as the completion of a home inspection.
By understanding these and other mortgage terms, you can feel more confident and prepared as you navigate the mortgage process. Don’t be afraid to ask your Helping Hands Loan Officer for clarification if you come across a term you don’t understand – they are there to help you!