Financial Glossary

Amortization is the process of spreading out a loan into a series of fixed payments over time, where each payment covers both principal and interest.

APR is the total annual cost of borrowing including the interest rate and all fees, expressed as a percentage.

An adjustable-rate mortgage (ARM) is a home loan with an interest rate that changes periodically based on a benchmark index.

A balloon payment is a large, lump-sum payment due at the end of a loan term after a series of smaller regular payments.

Closing costs are fees paid at the finalization of a mortgage or loan transaction, typically 2-5% of the loan amount.

A down payment is the initial upfront payment made when purchasing a home or other large asset, representing the buyer's equity from the start.

Escrow is a financial arrangement where a third party holds funds on behalf of two parties involved in a transaction, often used for property taxes and insurance.

A fixed-rate mortgage is a home loan with an interest rate that remains constant for the entire loan term.

Home equity is the difference between your home's current market value and the outstanding balance on your mortgage.

An interest rate is the percentage charged by a lender for borrowing money or paid by a bank on savings, expressed as an annual percentage of the principal.

The loan term is the length of time you have to repay a loan in full, typically expressed in years or months.

Loan-to-value ratio is the percentage of a property's value that is being financed through a mortgage, calculated by dividing the loan amount by the property value.

A mortgage is a loan used to purchase real estate, where the property itself serves as collateral for the loan.

An origination fee is a charge by a lender for processing and underwriting a new loan, typically 0.5-1% of the loan amount.

Principal is the original sum of money borrowed in a loan or invested, excluding any interest or earnings.

Private Mortgage Insurance (PMI) is insurance that protects the lender if a borrower defaults, typically required when the down payment is less than 20%.

A prepayment penalty is a fee charged by a lender if you pay off a loan early, either partially or in full, before the scheduled term ends.

Refinancing is the process of replacing an existing mortgage or loan with a new one, typically to obtain a better interest rate or different terms.

Underwriting is the process lenders use to assess a borrower's creditworthiness and determine whether to approve a loan application.

A variable-rate mortgage has an interest rate that can change periodically based on market conditions, causing monthly payments to fluctuate.