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Mortgage Basics
Understand the terms, costs, and documents behind your home loan. Start with a topic below.
Your mortgage and loan balance
A mortgage is a loan secured by a property. The principal is the amount you borrow. Interest is the cost of borrowing the money.
Amortization means reducing the loan balance through scheduled payments over time. With a fully amortizing loan, the scheduled principal and interest payments repay the balance by the end of the loan term.
Read more at the CFPBWhat makes up your monthly payment?
Your housing budget includes more than principal and interest. Account for property taxes, homeowners insurance, and mortgage insurance when required. Homeowners association or condominium fees are usually paid separately.
An escrow account collects money with your mortgage payment to pay property taxes and insurance when due. Changes in those bills affect the amount needed for escrow.
Read more at the CFPBInterest rate and APR
The interest rate describes the cost of borrowing the principal. The annual percentage rate (APR) includes the interest rate and certain loan charges, such as points and broker fees.
Review both figures when comparing offers. APR gives a broader view of borrowing costs, but it does not represent every expense of owning a home.
Read more at the CFPBFixed and adjustable rates
A fixed-rate mortgage keeps the same interest rate throughout the loan. An adjustable-rate mortgage (ARM) has a rate that changes according to the loan terms, often after an initial fixed period.
For an ARM, review when adjustments begin, how often they occur, and the limits on rate changes. Even with a fixed rate, your total housing payment changes when taxes or insurance costs change.
Read more at the CFPBPlanning your down payment
The down payment is the portion of the purchase price you pay upfront. Requirements depend on the loan program and your eligibility. A larger down payment reduces the amount you need to borrow.
Keep closing costs, moving expenses, repairs, and emergency savings in your budget. The down payment is only one part of the cash needed to buy a home.
Read more at the CFPBUnderstanding mortgage insurance
Mortgage insurance protects the lender if a borrower stops making payments. It adds to the cost of the loan and is different from homeowners insurance, which covers risks to your property under its policy.
Requirements, charges, and cancellation rules depend on the loan program. Ask whether mortgage insurance applies, how it is paid, and how long it is required.
Read more at the CFPBClosing costs and cash to close
Closing costs include charges related to obtaining the loan and transferring the property, such as appraisal, title, and lender fees. Prepaid insurance, interest, and initial escrow deposits also affect the funds needed at closing.
Cash to Close accounts for your down payment, closing costs, deposits already paid, credits, and other adjustments. Review that figure instead of assuming it equals the down payment alone.
Read more at the CFPBLoan Estimate and Closing Disclosure
For most home purchase mortgages, the Loan Estimate summarizes the proposed loan terms, estimated payment, and closing costs. Compare Loan Estimates for similar loan types and terms when reviewing offers.
The Closing Disclosure shows the final loan terms and costs. Compare it with your most recent Loan Estimate and ask your loan officer to explain differences before signing.
Read more at the CFPBExplore your loan options
Review our residential loan categories or speak with the Bravo team about your questions.