Your Guide to Understanding Mortgage Terminology
Adjustable-Rate Mortgage (ARM): A type of mortgage in which the interest rate can change over time based on market conditions, typically with an initial fixed-rate period followed by a variable rate period.
Amortization: The process of paying off a loan through regular payments over a set period of time.
Appraisal: An assessment of the value of a property conducted by a licensed appraiser.
Closing Costs: Fees for finalizing a mortgage, such as a title search and attorney fees.
Debt-to-Income Ratio (DTI): A ratio used by lenders to determine a borrower's ability to repay a loan, calculated by dividing monthly debt payments by monthly income.
Equity: The difference between the current value of a property and the amount still owed on the mortgage.
Fixed-Rate Mortgage: A type of mortgage in which the interest rate remains the same throughout the life of the loan.
Lien: A legal claim against a property as security for a debt or obligation.
Mortgage Insurance: Insurance that protects the lender if a borrower defaults on their loan.
Pre-Approval: A process in which a lender evaluates a borrower's creditworthiness and determines the maximum amount they can borrow.
Refinance: The process of replacing an existing mortgage with a new one, often to secure a lower interest rate or better terms.
Title: The legal document that establishes ownership of a property.
Underwriting: The process by which a lender evaluates a borrower's creditworthiness and risk level in order to determine whether to approve a loan.