We'll explain the pros and cons of each here. Find out more about down payments and the quotation process.

Home Loan Dictionary

As you compare home loans, you will encounter many terms with which you might not be familiar. Here is an abbreviated dictionary of common mortgage terms.

  • Adjustable-rate loans - also called variable-rate loans. These loans typically offer a lower initial interest rate than their fixed-rate counterparts. The interest rate will fluctuate over the loan's term according to market conditions. If rates rise, so will your payments. If rates fall, your payments will fall as well.
  • APR (Annual Percentage Rate) - the cost of credit signified by a yearly rate. The APR reflects the interest rate, broker fees, points, and all other charges you are required to pay. APR is the best measure to use to compare home loans.
  • Escrow - before closing, an objective third party holds onto documents or money. Escrow might also be an account maintained by your lender into which the borrower deposits money to cover taxes and insurance.
  • Fixed-rate loans - interest rate and monthly payment remain the same for the life of the loan, which is usually 15, 20, or 30 years.
  • Interest rate - percentage that reflects the cost of borrowing. When you compare home loans, it's important to look at more than just the interest rate because the lowest-interest loan might not be the cheapest overall.
  • Lock-in - a written agreement that guarantees a borrower a certain interest rate if the loan is closed within a specific period of time, usually 60 or 90 days.
  • Mortgage - the document you, the borrower, sign when a home loan is issued that empowers the lender to repossess your home if you fail to repay the loan.
  • Points - fees the borrower pays to the lender for the home loan. When you compare home loans, you should look for loans that allow you to purchase points up front to discount your interest rate. Usually, one point equals one percent of the amount of the loan.
  • Private Mortgage Insurance (PMI) - additional monthly expense that the borrower must pay if the down payment made on a home loan is less than 20%. PMI protects the lender in the event that you default on the mortgage loan.
  • Transaction or closing costs - usually include application fees, title insurance, deed preparation fees, attorney fees, appraisal fees, credit report fees, etc. You are entitled to an estimate of these costs within three days of applying for your home loan. If you have any more questions, please find your answers on our Frequently Asked Questions page.