Understanding the Basics
Buying a home should feel like a fresh start, not a cram session in mortgage-speak. Below, we’ve simplified some of the most common terms you’ll hear during your journey. Feel free to bookmark this page or ask us directly if you need more clarity, we’re here to make things easy.
Principal
WHAT IT MEANS
The original amount of money borrowed on a loan (not including interest).
WHY IT MATTERS
Each mortgage payment goes partly toward paying down your principal and partly toward interest. Reducing your principal faster can lower the total cost of your loan over time.
Interest Rate
WHAT IT MEANS
The percentage the lender charges you for borrowing money.
WHY IT MATTERS
Even a small difference in interest rate can affect your monthly payment and how much you’ll pay over the life of your loan.
Down Payment
WHAT IT MEANS
The portion of your home’s purchase price you pay upfront.
WHY IT MATTERS
A larger down payment often means a smaller loan amount, potentially lower monthly payments, and might eliminate the need for mortgage insurance.
Loan Estimate
WHAT IT MEANS
A form provided by your lender after you apply, outlining estimated interest rate, monthly payment, and closing costs.
WHY IT MATTERS
It helps you compare mortgage options and see the estimated costs. Always review it carefully before you sign anything.
Closing Costs
WHAT IT MEANS
Expenses you pay at closing, such as appraisal fees, title fees, and loan origination charges.
WHY IT MATTERS
These fees typically range from 2% to 5% of the home’s price, so planning for closing costs is crucial to avoid surprises at the finish line.
Private Mortgage Insurance (PMI)
WHAT IT MEANS
Insurance protecting the lender if you default on your loan, usually required when your down payment is under 20%.
WHY IT MATTERS
It adds to your monthly mortgage payment. Once you reach enough equity in the home, you can often remove PMI.
Escrow
WHAT IT MEANS
An account set up by your lender to hold funds for property taxes and homeowners insurance. You pay into it monthly as part of your mortgage payment.
WHY IT MATTERS
It helps ensure big costs (like taxes) are covered without a hefty one-time bill.
Underwriting
WHAT IT MEANS
The process where your lender reviews your financial info—credit, income, assets—to decide if you qualify for the loan and under what terms.
WHY IT MATTERS
Underwriting approval is a key milestone that signals you’re one step closer to getting the keys to your home.
Amortization
WHAT IT MEANS
How your mortgage payments are structured over time, showing how each payment gradually chips away at principal and interest.
WHY IT MATTERS
Knowing your amortization schedule lets you see how your loan balance decreases, especially if you consider extra payments to reduce interest costs.
Annual Percentage Rate (APR)
WHAT IT MEANS
A broader measure of the cost of borrowing, factoring in the interest rate plus certain fees or charges.
WHY IT MATTERS
APR offers a more complete picture of what your loan really costs each year compared to just the interest rate.
Ready for the Next Steps?
Mortgages don’t have to be complicated. At Alta Home Lending, we’re all about explaining the “why” behind every term so you can make smarter decisions, on your terms. Reach out today, and let’s get you one step closer to home.
