A temporary rate reduction strategy where the mortgage interest rate is reduced by 2% during the first year and 1% during the second year before reverting to the note rate. This helps ease borrowers into higher payments while they stabilize their finances.
A graduated buydown option that lowers the interest rate by 3% in the first year, 2% in the second year, and 1% in the third year before reverting to the standard rate. Ideal for borrowers anticipating income growth in the early years.
A mortgage with an interest rate that periodically adjusts based on a benchmark index. ARMs often start with a lower rate than fixed-rate mortgages but expose borrowers to potential future rate increases.
The systematic process of repaying a loan through regular payments that cover both principal and interest. Formula: M = P × [r(1 + r)n] ÷ [(1 + r)n − 1], where M = monthly payment, P = principal, r = monthly interest rate, and n = number of payments.
A comprehensive measure of the annual cost of borrowing that includes both the interest rate and associated fees. APR enables borrowers to compare different loans on a level playing field.
The effective annual return on an investment, which accounts for the effect of compounding interest. APY is a key metric for comparing savings and investment products.
A safeguard that limits how much the interest rate on an adjustable-rate mortgage can change at each adjustment period, protecting borrowers from sudden large increases.
A certified evaluation of a property's market value conducted by an appraiser. Appraisals ensure that the property’s value justifies the loan amount and meets lender standards.
A substantial, lump-sum payment due at the end of a loan term following a series of smaller periodic payments. This structure can lower initial payments but requires careful planning for the final sum.
A licensed real estate professional representing the homebuyer’s interests. They guide property searches, negotiate purchase terms, and work to secure favorable conditions for the buyer.
A collection of fees and expenses due at the final stages of a property purchase, including appraisal, title, escrow, and legal fees. These costs are typically paid at closing and can be substantial.
A standardized document provided by the lender at least three days before closing that details the final loan terms, fees, and the cash required at closing, ensuring transparency in the transaction.
A regular fee paid by members of a cooperative housing arrangement to cover shared building expenses, management, and maintenance of common areas.
The ratio of all loans secured by a property (including secondary financing) to its appraised value, expressed as a percentage. CLTV provides insight into the total debt burden.
A mortgage that meets the guidelines and loan limits set by government-sponsored enterprises such as Fannie Mae and Freddie Mac. Conforming loans often come with lower interest rates and more favorable terms.
A numerical indicator of a borrower's creditworthiness based on factors such as payment history, outstanding debt, and length of credit history. Higher scores often lead to more favorable loan terms.
A measure comparing a borrower's monthly debt obligations to their gross monthly income. Lenders use DTI to assess a borrower’s capacity to take on additional debt.
The initial cash contribution made toward the purchase of a property, typically expressed as a percentage of the total price. A larger down payment can secure better loan terms and lower monthly payments.
The portion of a property’s value that the owner actually owns, calculated as the current market value minus any outstanding mortgage balance. Equity grows as the loan is paid down or the property appreciates.
A financial arrangement in which a neutral third party holds funds—commonly for property taxes and insurance—until they are due, ensuring timely payments and protecting both borrower and lender.
A mortgage with a constant interest rate throughout the entire loan term, offering stable and predictable monthly payments that facilitate long‑term budgeting.
A mortgage insured by the Federal Housing Administration, designed to help borrowers with lower credit scores or smaller down payments secure financing. FHA loans typically feature more flexible qualification criteria.
An insurance policy that provides coverage for damage or loss to a property caused by hazards such as fire, theft, or natural disasters. It may also include liability protection for accidents on the property.
Regular dues paid by homeowners in a community managed by a Homeowners Association. These fees support the maintenance of common areas, amenities, and community services.
A revolving line of credit secured by the equity in a home. HELOCs allow homeowners to borrow funds as needed, typically at a variable interest rate, making them a flexible option for home improvements or unexpected expenses.
The percentage cost of borrowing money, applied to the outstanding principal of a loan. This rate is a key determinant of the monthly payment and overall cost of the mortgage.
A mortgage that exceeds the conforming loan limits set by government-sponsored entities. Jumbo loans typically require higher credit scores, larger down payments, and may have higher interest rates.
A risk assessment metric calculated as LTV = (Loan Amount ÷ Property Value) × 100. Lower LTV ratios generally qualify borrowers for better interest rates and loan terms.
A licensed intermediary who works with multiple lenders to help borrowers secure the best mortgage product for their financial profile and needs.
An insurance premium required for certain government-backed loans, such as FHA loans, to protect the lender against losses if the borrower defaults. MIP can be paid upfront or added to monthly payments.
A fee charged by the lender to cover administrative costs associated with processing a new loan application, usually expressed as a percentage of the loan amount.
A one‑time fee paid at closing to permanently reduce the interest rate on a mortgage, lowering monthly payments and reducing the total interest paid over the life of the loan.
Upfront fees paid to reduce the mortgage’s interest rate. Typically, one point equals 1% of the loan amount and can yield significant long‑term savings on interest.
Insurance required when a borrower makes a down payment of less than 20% of the home’s price, protecting the lender in case of default. PMI is usually added to the monthly mortgage payment.
The act of paying off part or all of the mortgage before its scheduled due date. Early prepayment can reduce total interest costs but might incur penalties depending on the loan terms.
The original sum borrowed on a mortgage, excluding interest. As payments are made, a portion of the principal is reduced, gradually building equity in the property.
An annual or semi‑annual tax based on the assessed value of a property, levied by local governments to fund public services such as schools, roads, and emergency services.
A commitment from a lender to hold a specific interest rate for a set period during the mortgage process, protecting the borrower from market rate fluctuations.
The process of replacing an existing mortgage with a new loan, typically to secure a lower interest rate, modify the loan term, or access home equity. Refinancing can lead to improved cash flow and overall savings.
A loan available to homeowners aged 62 or older that allows them to convert part of their home equity into cash without selling the property. Repayment is deferred until the borrower moves out or passes away.
A licensed real estate professional representing the seller’s interests in a property transaction, responsible for marketing the home, negotiating offers, and facilitating a successful sale.
The ongoing management of a mortgage loan by the lender or a third‑party servicer, including the collection of monthly payments and administration of escrow accounts.
An insurance policy that protects against financial loss due to defects in a property’s title, such as liens or ownership disputes, safeguarding both the buyer and the lender.
The detailed evaluation process in which a lender reviews a borrower’s credit, income, assets, and liabilities to assess the risk of granting a mortgage and ensure compliance with lending guidelines.
A mortgage guaranteed by the U.S. Department of Veterans Affairs, offering favorable terms and often requiring little or no down payment for eligible veterans and active‑duty service members.