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Mortgage Terminology
Here are some of the terms you’ll encounter when you apply for a mortgage. When you work with Coldwell
Banker Home Loans, your local Loan Officer will explain everything you need to know and ensure that you
have a hassle-free, on-time closing.
Annual Percentage Rate (APR)
The APR is the actual cost of your mortgage loan stated as a yearly rate. By looking at the APR, you can tell
whether or not it is beneficial to pay points upfront to get a lower rate. You don’t have to calculate the APR
yourself; by law, the lender must tell you the APR on the loan as well as the interest rate.
Closing Costs
Costs necessary to transfer ownership of a property so you can close your mortgage loan. Closing costs
may be paid by the buyer and/or the seller, and they may include an origination fee, attorney’s fee, taxes and
charges for obtaining title insurance and a survey.
Credit Score
A number, based on the analysis of your credit report, used by the lender to determine your ability to qualify
for a mortgage loan. Credit scores usually range from 300 to 900 – the higher the number, the easier it is to
qualify for a loan and may result in a better interest rate. Also known as FICO score.
Escrow Account
A trust account created by a third party to hold money. In a mortgage transaction, generally these funds
are used to pay taxes and insurance bills when they become due. To fund the account, monthly mortgage
payments may include 1/12 of annual property taxes and insurance.
Points
A percentage of your loan amount, paid at closing. For instance, on a $90,000 loan amount, 1 point = 1% or
$900. You may have the option to pay points to buy down (reduce) your interest rate. Alternatively, in exchange
for a higher rate, the lender may pay points to offset your closing costs. These are called negative points.
Principle, Interest, Taxes and Insurance (PITI)
The four components of a monthly mortgage payment (also referred to as the monthly housing expense).
Principle is a part of the monthly payment that reduces the outstanding balance of your loan and interest is
the cost to you for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and
homeowners insurance.
Private Mortgage Insurance (PMI)
An insurance policy that guarantees payment of a conventional mortgage loan in case of default. PMI is usually
required if your down payment is less than 20% of the home price. On an FHA loan, this insurance is called
Mortgage Insurance Premium (MIP).
COLDWELL BANKER HOME LOANS
ESSENTIAL GUIDE
for
Home Buyers
and
Sellers
The