Points are a percentage of a loan amount paid up front to reduce the interest rate. Each point equals 1% of the mortgage loan. Paying points lowers the ongoing monthly payments.
APR stands for annual percentage rate. It represents the true annual cost of borrowing by including the interest rate plus certain fees and points.
Amortization is the process of gradually paying down a mortgage loan over time through monthly payments. Each payment chips away at the principal and interest until the loan is fully paid off.
An escrow account holds funds slated for property taxes and homeowner’s insurance. Lenders require escrow accounts to ensure these costs are paid on time. A portion of the monthly mortgage payment goes into escrow.
Earnest money refers to a deposit paid by the home buyer to show their serious intent to purchase the property. It is usually 1-5% of the sales price and goes toward the down payment if the deal closes.
PMI stands for private mortgage insurance. It protects the lender if the borrower defaults. PMI is usually required if you put down less than 20% on a home.
