Six Mortgage Terms to Know Before you Buy

Whether you are buying your first home or upgrading to your next home, it’s good to familiarize yourself with the language of home buying. There are literally hundreds of terms tossed around when you’re in the midst of securing a mortgage loan – some that you might be unfamiliar with and some that might be confusing. Here’s a closer look at 6 common terms related to mortgage loans.

1.) APR—Annual Percentage Rate: The APR is actually more than just your loan rate. The mortgage loan APR takes into account not only the interest rate but also points, broker fees, and certain other credit charges that you may be required to pay, expressed as a yearly rate.

2.) ARM Loan—Adjustable Rate Mortgage: A loan with an interest rate that can be changed by the lender after a specified period of time.

3.) Escrow—a neutral third party account that holds money/legal documents for safekeeping until the real estate transaction is completed. An escrow account is also an account commonly held by a lender into which the homeowner pays money for annual taxes and insurance on their property.

4.) Fixed-Rate Mortgage—a traditional home loan in which the interest rate, terms, and monthly payments remain the same throughout the life of the loan.

5.) Loan to Value Ratio (LVR or LTV): A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased. The higher the LTV, the less cash a borrower is required to pay as a down payment.

6.) Points—Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages to cover loan origination costs or to provide additional compensation to the lender or broker. One point is equal to 1 percent of the principal amount of a mortgage loan. For example, if a mortgage is $100,000, one point equals $1,000. Points are paid usually on the loan closing date and may be paid by the borrower or the home seller, or split between the two parties. Discount points (sometimes called discount fees) are points that the borrower voluntarily chooses to pay in return for a lower interest rate.

Check out these sites for more useful mortgage lending terminology:

The Federal Trade Commission site:


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