Demystifying Mortgage Terms: A Simple Glossary for First-Time Homebuyers
- Chris Heidt
- Aug 6
- 2 min read
Buying a home is one of the biggest decisions most people ever make—and the mortgage process can feel like learning a new language. If you've ever found yourself Googling, "What is amortization?" or "What's the difference between APR and interest rate?" — you're not alone.
This mortgage glossary was created to make things easier. Whether you’re a first-time buyer or just brushing up on key terms, this resource will help you feel more confident, informed, and empowered.
Key Mortgage Terms to Know:
1. Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that can change periodically, often after an initial fixed period.
2. Amortization: The process of gradually paying off a loan through regular payments that cover both principal and interest.
3. Annual Escrow Statement: A yearly summary of your escrow account activity, showing how funds were used to pay property taxes and insurance.
4. Annual Percentage Rate (APR): A broader measure of your loan cost that includes the interest rate and other charges, making it easier to compare loans.
5. Appraisal: A professional estimate of a property’s value, often required by lenders.
6. Assumption: When a buyer takes over the seller's existing mortgage, subject to lender approval.
7. Biweekly Mortgage: Payments made every two weeks instead of monthly, often resulting in faster loan payoff.
8. Closing Disclosure (CD): A document outlining the final terms and costs of your mortgage. You'll receive this at least 3 days before closing.
9. Conventional Mortgage: A home loan not insured or guaranteed by the government.
10. Credit Score: A three-digit number that indicates your creditworthiness. It helps lenders determine the likelihood you'll repay your loan.
11. Down Payment: The upfront cash you contribute toward the home's purchase. Typically ranges from 3% to 20% of the home's price.
12. Equity: The difference between what your home is worth and what you owe on it. As you pay down your mortgage, your equity grows.
13. Escrow Account: A separate account your lender uses to hold funds for taxes and insurance, paid monthly as part of your mortgage.
14. Fixed-Rate Mortgage: A loan with an interest rate that stays the same throughout the life of the loan.
15. Loan Estimate (LE): A standard form detailing important info about your loan, including interest rate, monthly payment, and closing costs.
16. Loan-to-Value Ratio (LTV): The percentage of the property's value being financed by the mortgage. Lower LTVs typically mean better rates.
17. PITI: Acronym for Principal, Interest, Taxes, and Insurance—the four components of most mortgage payments.
18. Refinance: Replacing your existing mortgage with a new one, typically to get a lower rate or change loan terms.
19. Title Insurance: Protects you and your lender from potential issues with property ownership.
20. Underwriting: The process your lender uses to assess your risk and decide whether to approve your loan.
Final Thoughts
Understanding mortgage terms helps you feel more in control during the homebuying process. And at Highland Mortgage, we believe informed buyers are empowered buyers.
Have more questions? Let’s talk about your homeownership goals.
Contact Chris A. Heidt Mortgage Banker | Highland Mortgage
(239) 470-6310
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