Mortgage Glossary
Understand the key terms to master your mortgage.
Amortization
The process of paying off debt with regular payments over time.
Principal
The original amount of money borrowed, separate from any interest or fees.
Interest
The cost of borrowing money, typically expressed as a percentage of the principal.
APR (Annual Percentage Rate)
The annual rate charged for borrowing, including fees and interest.
Euribor
The Euro Interbank Offered Rate. A daily reference rate that reflects the average interest rate at which eurozone banks lend to each other.
Refinancing
The process of replacing an existing loan with a new one, usually with better terms.
Foreclosure
A legal process where the lender takes control of a property after the borrower fails to make payments.
Subprime
Loans offered to borrowers with low credit scores and higher risk of default.
Fixed Rate
An interest rate that remains the same for the entire term of the loan.
Variable Rate
An interest rate that can change over time, usually based on an index like Euribor.
Down Payment
The initial upfront payment made when buying a home, usually a percentage of the total price.
Loan-to-Value (LTV)
A ratio comparing the loan amount to the appraised value of the property.
Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income that goes to paying your monthly debt payments.
Closing Costs
Fees paid at the closing of a real estate transaction, including taxes, insurance, and lender fees.
Equity
The difference between the market value of your home and the amount you owe on your mortgage.
Escrow
A financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction.
Pre-approval
A lender's conditional agreement to lend a specific amount to a borrower.
Underwriting
The process a lender uses to determine if the risk of lending to a particular borrower is acceptable.
Appraisal
An unbiased professional opinion of a home's value.
Private Mortgage Insurance (PMI)
Insurance that protects the lender if you stop making payments, usually required if down payment is less than 20%.
Lien
A legal claim or right against a property.
Deed
The physical document that transfers ownership of property from the seller to the buyer.
Maturity Date
The date when the final payment on a loan is due.
Default
Failure to repay a loan according to the terms agreed to in the promissory note.
Collateral
An asset that a borrower pledges to a lender to secure a loan.