10 Common Mortgage Terms

Buying a home means you’ll be hearing a lot of acronyms and terms that may be new to you. This list of some of the most common terms and their definitions can help you feel more prepared.  

1. Amortization – Amortization refers to your mortgage’s repayment plan over time. Usually, you’ll receive an amortization schedule, which details your future payments and how your loan will be paid down. 
2. Annual Percentage Rate (APR) – APR is the amount of interest you’ll pay on your loan, which may be a fixed rate or an adjustable rate, depending on the type of mortgage. The higher your rate, the more you’ll pay.  
3. Closing Costs – Closing costs are fees you’ll pay to complete the mortgage process. Closing costs may include an appraisal, prepaid interest, mortgage origination and underwriting, and more. Many lenders, including UW Credit Union, offer discounts on closing costs. 
4. Debt-to-Income Ratio (DTI) – Debt-to-income ratio is a percentage that represents how much debt you have versus how much income you make. Lenders use DTI to assess your ability to pay back a mortgage. 
5. Down Payment – A down payment is the amount of money you pay toward the purchase price of your new home. Lenders usually require you to pay a certain percent down payment to qualify for a mortgage. Paying 20% of the home’s purchase price is often cited as the amount to put down but talk to your lender about options. There are loans and down payment assistance programs that can help you buy a home with a much smaller down payment.  
6. Escrow – An escrow account holds an amount of your money to pay for things like property taxes and insurance. The lender manages the account and makes payments from it. Typically, these payments are rolled into your monthly mortgage payment. 
7. Equity – Equity is the difference between how much your home is worth and how much you owe on your mortgage. For example, if your home is worth $200,000 and your mortgage is $150,000, you have $50,000 in equity. If you ever want to open a home equity line of credit or home equity loan this is an important number to know. 
8. Loan-to-Value Ratio (LTV) – Loan-to-value ratio is a percentage that represents the amount you owe versus how much your home is worth. If your home is worth $200,000 and your mortgage is $150,000, your LTV is 75%. 
9. Principal – Principal is the amount of money borrowed for your mortgage. It does not include the interest portion of your payment. When making mortgage payments, the principal portion goes directly to paying off your loan. 
10. Private Mortgage Insurance (PMI) – If you make a down payment of less than 20%, lenders usually will require you to pay PMI, a monthly fee until you’ve paid off 20% of your home’s purchase price. 

Ready to buy? Get in touch with our local mortgage lending experts or get preapproved. 

Still researching? Explore our Mortgage Learning Center.