Do you find yourself sitting with your lender, while they’re throwing around acronyms like APR and PMI, and you’re all “WTF”? I assure you, you’re definitely not alone. Mortgage lingo isn’t something people just chat about over a cup of coffee. So here, we’ll touch on the lingo that you need to know so you’re not like “OMG” at the closing table.
I get it. There are so many terms; it’s mind boggling. So here, we’ve narrowed it down to the lingo you need in your mortgage vocab so you’ll feel confident next time you find yourself in the lender’s office.
- Annual Percentage Rate (APR): So, we know what an interest rate is, right? It’s money that you pay each month as part of your mortgage payment. The annual percentage rate, or APR, is your interest rate for the whole year. The APR includes your interest rate plus points (we’ll get to that), and any other fees or costs associated with the loan.
- Closing Costs: Closing costs are all of the charges and fees associated with buying a home that are due at closing. These include appraisal fees, title insurance, loan processing fees, underwriting costs, and more. Sometimes you can negotiate that the seller cover some or all of these costs. Hey, it never hurts to ask!
- Escrow: Think of escrow like it’s own little separate bucket where part of your mortgage payment is held to pay for things like homeowners insurance and property taxes.
- Points: Points are always a good thing, right? Brownie points, goal points, loyalty points, what have you. And they’re also pretty great when it comes to saving you money in the long run. Basically, points are a way to buy down your interest rate. Each point costs 1% of your mortgage amount. So, $1,000 for every $100,000. And each point lowers your interest rate by a quarter of a percent. Doesn’t seem like a lot now, but I assure you, it adds up to thousands in savings.
- Private Mortgage Insurance (PMI): If you don’t have 20% to put down for a down payment (pssst… most of us don’t…), you’ll likely have to pay Private Mortgage Insurance or PMI. It’s a safeguard to the lender in the event that you default on your loan. The good thing is, when you reach 20% equity in your home, you can get rid of it.
Not bad, right? You’re probably feeling pretty good right about now, ready to walk into your lender’s office with your shoulders back, head held high, and a smile on your face, ready for whatever mortgage-related terms are thrown your way because YOU GOT THIS!