Need Financial
Assistance?
 Mortgage Calculators:
Twenty Terms You Must Know and
Understand Before You Sign Off On
Your Mortgage!Buying a home is a major
achievement in most everyone’s life.
Pride of ownership, tax breaks and
equity are just a few of the many
benefits you’ll enjoy with your new
home. Your home purchase may also be
one of the largest you will ever
make.
During the emotional excitement of
buying a home, you may encounter
terms with which you are unfamiliar.
For some, it can be bit embarrassing
to ask what they consider too many
questions. Others may make a note of
their questions but simply forget to
revisit those points. To ensure that
you have complete confidence during
your home loan process, invest a
moment to read this report and
become familiar with the concepts
and terms you’ll encounter.
Knowledge is power and the more you
know the more successful will be
your decisions and the more soundly
will you sleep at night having made
them.
Adjustable Rate Mortgage (ARM)
Also referred to as a Variable Rate
Mortgage. A mortgage in which the
interest rate is adjusted
periodically based on a pre-selected
index.
Annual Percentage Rate (APR)
An interest rate that reflects the
cost of a mortgage as a yearly rate.
This rate takes into account any
points and fees and is based on the
loan going to it’s full-term.
Assumption
An agreement between buyer and
seller in which the buyer assumes
responsibility for the seller’s
existing mortgage. This agreement
usually saves the buyer money
because closing costs and the
current interest rate, possibly
higher, do not apply.
Buy-down
A method of lowering the buyer’s
monthly payment for a short period
of time. The lender or homebuilder
subsidizes the mortgage by lowering
the interest rate for the first few
years of a loan.
Caps
A limit in the amount the interest
rate or monthly payments for an
adjustable rate mortgage that may
change.
Closing
Also referred to as settlement. The
meeting at the conclusion of a real
estate sale in which the property
and funds are exchanged between the
two parties involved.
Debt-to-Income Ratio
The ratio, expressed as a
percentage, which results from
dividing a borrower’s monthly
payment obligation on long-term
debts by the borrower’s gross
monthly income.
Discount Points
Prepaid interest assessed at closing
by the lender. A point is equal to 1
percent of the loan amount.
Down Payment
Cash paid by the buyer at closing
that makes up the difference between
purchase price and the mortgage
amount.
Earnest Money
Money given by a buyer to a seller
as a deposit to commit the buyer to
the future transaction. Earnest
money is subtracted from closing
costs.
Equity
The value an owner has in real
estate over and above the obligation
against the property. Equity is fair
market value minus the current
indebtedness.
Escrow
Funds given to a third party which
will be held to cover payments such
as tax or insurance payments and
earnest money deposits.
Fixed Rate Mortgage
A mortgage in which the interest
rate remains constant throughout the
life of the loan.
Loan-to-Value Ratio
The ratio between the amount of the
mortgage loan and the appraised
value of the property.
Market Value
The price that a property could
possibly bring in the marketplace.
Mortgage Insurance
Insurance that protects lenders
against loss if a borrower defaults.
This is required when the
loan-to-value ratio is greater than
80 percent.
Origination Fee
A fee charged by a lender for
processing a loan application;
usually computed as a percentage of
the loan.
PITI
Refers to Principal, Interest,
Taxes, and Insurance.
Underwriting
The decision-making process of
granting a loan to a potential
homebuyer.
Variable Rate Mortgage
Also referred to as Adjustable Rate
Mortgage. A mortgage in which the
interest rate is adjusted
periodically based on a pre-selected
index.
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Ingrid Willsey,
REALTOR®/Broker
Ingrid Willsey and Associates
Direct: 858.337.8742
Email:
Ingrid@RealEstateinDelMarCA.com
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