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#275 - Twenty Terms You Must Know and Understand Before You Sign Off On Your Mortgage!

Buying a home is a major achievement in most everyone’s life. Pride of ownership, tax breaks and equity are just a few of the many benefits you’ll enjoy with your new home.

Your home purchase may also be one of the largest you will ever make. During the emotional excitement of buying a home, you may encounter terms with which you are unfamiliar.

For some, it can be bit embarrassing to ask what they consider too many questions. Others may make a note of their questions but simply forget to revisit those points.

To ensure that you have complete confidence during your home loan process, invest a moment to read this report and become familiar with the concepts and terms you’ll encounter.

Knowledge is power, and the more you know, the more successful your decisions will be and the more soundly you will sleep at night having made them.

Adjustable Rate Mortgage (ARM)

Also referred to as a Variable Rate Mortgage! A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.

Annual Percentage Rate (APR)

An interest rate that reflects the cost of a mortgage as a yearly rate! This rate takes into account any points and fees and is based on the loan going to it’s full-term.


An agreement between buyer and seller in which the buyer assumes responsibility for the seller’s existing mortgage! This agreement usually saves the buyer money because closing costs and the current interest rate, possibly higher, do not apply.


A method of lowering the buyer’s monthly payment for a short period of time; the lender or homebuilder subsidizes the mortgage by lowering the interest rate for the first few years of a loan.


A limit in the amount the interest rate or monthly payments for an adjustable rate mortgage may change.


Also referred to as settlement! The meeting at the conclusion of a real estate sale in which the property and funds are exchanged between the two parties involved.

Debt-to-Income Ratio

The ratio, expressed as a percentage, which results from dividing a borrower’s monthly payment obligation on long-term debts by the borrower’s gross monthly income.

Discount Points

Prepaid interest assessed at closing by the lender. A point is equal to 1 percent of the loan amount.

Down Payment

Cash paid by the buyer at closing that makes up the difference between purchase price and the mortgage amount.

Earnest Money

Money given by a buyer to a seller as a deposit to commit the buyer to the future transaction; Earnest money is subtracted from closing costs.


The value an owner has in real estate over and above the obligation against the property. Equity is fair market value minus the current indebtedness.


Funds given to a third party, that will be held to cover payments such as: tax or insurance payments and earnest money deposits. 

Fixed Rate Mortgage

A mortgage in which the interest rate remains constant throughout the life of the loan

Loan-to-Value Ratio

The ratio between the amount of the mortgage loan and the appraised value of the property

Market Value

The price that a property could possibly bring in the current market

Mortgage Insurance

Insurance that protects lenders against loss if a borrower defaults. This is required when the loan-to-value ratio is greater than 80 percent

Origination Fee

A fee charged by a lender for processing a loan application; usually computed as a percentage of the loan


Refers to Principal, Interest, Taxes, and Insurance


The decision making process of granting a loan to a potential homebuyer

Variable Rate Mortgage

Also referred to as Adjustable Rate Mortgage; A mortgage in which the interest rate is adjusted periodically based on a pre-selected index

We sincerely hope these tips and ideas are of value to you. If there is any way we can be of service, please contact our office.

We would consider it a privilege to be of service to you! If you would like a FREE, non-committal consultation, please call me at 702-273-8705. 

Warmly Yours,

Bill Smith, Realtor®
Accredited Buyer's Agent (ABR)
Century 21 Aadvantage Gold

For more information about selling your home, please do not hesitate to contact me

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