5 Key Mortgage Terms Every Homebuyer Should Know

Mortgage paperwork comes with plenty of unfamiliar language, but understanding a few key terms can make things much clearer. Here are 5 mortgage terms worth knowing.

1. APR – Annual Percentage Rate

APR represents the annual cost of borrowing and includes the interest rate plus certain loan fees, making it different from the interest rate alone.

2. Principal

Principal is the amount of money you've borrowed. As you make payments, reducing your principal balance helps build equity in your home.

3. Interest Rate

Your interest rate is the percentage you're charged for borrowing money and is one of the factors used to calculate your monthly mortgage payment.

4. LTV - Loan-to-Value

LTV compares the amount you're borrowing to the property's value. Lenders use this ratio when evaluating your loan and certain program requirements.

5. Points

Discount points are an upfront cost you can choose to pay in exchange for a lower interest rate, sometimes referred to as "buying down the rate."

You don't have to become a mortgage expert, but understanding the language can help you ask better questions and make more confident decisions.