Mortgage Vocab Terms 101
Starting your journey to buy or finance a home can be filled with many emotions, including excitement and stress. It is also filled with mortgage vocabulary that you should familiarize yourself with to ensure you understand your mortgage. Reading through these important key vocab words below will help reduce stress and let you instead focus on the excitement of the process.
Principal: The amount of money that you initially borrow and will need to repay.
Interest: Interest is the percentage of the principal that you pay for borrowing money. The interest rate is the primary component of your APR. Your interest rate is determined in large part by the current cost of borrowing in the economy and your creditworthiness.
APR (Annual Percentage Rate): The APR is a representation of the annual percentage you will need to pay back on top of the principal. It includes your interest rate, points, fees, and other costs.
Points: Mortgage points, also called "discount points," are fees that can be prepaid at closing. Paying points at closing can trim down the mortgage rate. Each point is 1% of the loan amount. For example, on a $90,000 loan with two points, you’d prepay $1,800. On average, each point paid lowers the rate by .25%. So, one point could lower a 3% mortgage rate to 2.75% for the life of the loan. It is important to keep in mind that how much each point lowers the rate varies from lender to lender. Additonally, the amount that each point can lower the rate by is dependent on the type of mortgage and the current interest rate environment.
Fees: Fees include application fees, loan origination fees, and other initial costs imposed by the lender.
Term: The total length of the loan. A longer term means lower monthly payments, but higher overall costs as it results in more interest being accumulated. Similarly, a shorter term means higher monthly payments but a lower overall cost.
PITI: Principal, Interest, Taxes and Insurance are known as PITI. These are the four fundamental elements of a monthly mortgage payment.
If you have any questions about any other mortgage terminology, Monson Savings Bank’s Mortgage Lenders are here to help you understand the ins and outs of your mortgage. Please contact a Residential Lender so we can help.
