If you find yourself lost in a sea of terminology during the mortgage process, these definitions may help you navigate your way through closing.
Amortization – This term describes the schedule that determines how much you pay per month in fixed amounts of principal and interest, defined by Discover.
Adjustable Rate Mortgage – This type of mortgage has an interest rate that is tied to a predetermined index. The rate will go up or down with the index, so there's no guarantee what your interest rate will be over time.
Appraisal – An appraisal is an estimate of a property based on the quality and condition of the property, the location, and comparable sales in the area.
Closing – The final step in the mortgage process when the house legally changes hands between the buyer and seller is the closing.
Debt-to-income Ratio – The amount of your long-term debt payments as compared to your income creates this ratio. It is typically calculated as a percentage and can be figured out using a debt-to-income calculator like the one on MortgageCalculator.com.
Down payment – This is the amount of money you pay up front for your new home. The remainder of the money owed on the house is paid with your mortgage.
Escrow – This is a separate account controlled by neither the buyer or seller which is often set up by the title company. Money is put into an escrow account to be held until specific obligations are fulfilled or paperwork is complete.
Equity – The total percentage of the property owned by the owner of the house, not the bank, is called your equity in the house. This is calculated based on the value of the property as compared to the amount still owed to the mortgage lender.
Points – This is a term used for the amount of interest prepaid to when signing for a mortgage. By paying interest up front, the interest rate of a loan as well as the monthly payments will probably be reduced.
Principal – The amount still owed on a mortgage not including interest is the principal.
Title – The ownership of a property is legally determined by the title; it lists the legal owner of the property.