Mortgage Terms to Know Before Buying

You are thinking about buying a home and have begun doing due diligence on how to acquire a mortgage. However, you feel a bit lost when skimming through the typical industry buzz words. It is of the utmost importance that you feel knowledgeable enough to be able to make this crucial financial decision. Below are some important mortgage terms to familiarize yourself with.


This is the distribution of your monthly payment. A portion of your payment reduces the loan balance, while the rest pays the interest. This allocation split changes throughout the life of the mortgage. For standard fixed-rate mortgages, earlier payments go more toward interest. As the loan gets smaller, more of the monthly payment goes toward the remaining balance.

Annual percentage rate (APR)

APR expresses the yearly cost of your mortgage including interest and fees.

For instance, suppose you are shopping for a mortgage, and Lender A is offering a mortgage with a 3.5% interest rate and APR of 3.586%. Lender B is offering the same interest rate with an APR of 3.712%. Lender B will wind up costing you roughly .2% more over the life of the loan due to their additional fees. Monthly principal and interest payments are based on the interest rate, not the APR rate.

When looking around for a mortgage, it is key to evaluate all costs attached in addition to interest rates.

Closing Costs

Here are some purchases and fees associated with closing on your mortgage:

1. Origination fee: the fee for processing things such as the mortgage application, underwriting costs, and funding.
2. Escrow fees: money collected by the lender or title company on your behalf to pay future real estate taxes and insurance.
3. Title insurance: insurance that safeguards the buyer from potential title defects.
4. Recording fees: fees paid to municipalities for recording the title, mortgage, and other relevant documentation.

Among other items, the closing process must be accounted for when calculating the true cost of a potential mortgage.


You can lower your interest rate by paying points beforehand to your lender. It is a prudent option if the likelihood is high that you will retain the property for a long period (five years or more). To buy down your interest rate by paying upfront fees to your lender in the form of points, you will be saving money in the long run.

If you have questions about any of the mortgage terms in this article, or other terms you may not be familiar with, you can reach us at (800) 448-8101 and one of our Loan Officers will be more than happy to explain these terms to you. Feel free to read other posts in our blog to familiarize yourself with other terms and products that we offer.


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