Real Estate Glossary Financing

Browse the list alphabetically . The topical list groups terms by steps in the home buying process.

Financing

amortization
The process of paying the principal and interest on a loan through regularly scheduled installments. Initially, most of each payment is applied toward interest owed, and later in the loan term increasingly applied toward principal.

annual percentage rate (APR)
A measure of interest rate that expresses the cost of a mortgage as a yearly rate on the loan balance. The APR assumes the loan is held for its full term. For adjustable-rate loans, the APR assumes the loan's index doesn't change from its initial value.

appraisal
An opinion of the value of a property at a given point in time.

basis point
A basis point is one one-hundredth of one percentage point. For example, the difference between a loan at 8.25 percent and a mortgage at 8.37 percent is 12 basis points.

fixed-rate mortgage
A home loan with an interest rate that will remain at a specific rate for the term of the loan. About 75 percent of all home mortgages have fixed rates.

interest rate
The fee, expressed as a percentage, charged for a loan. The interest rate also helps determine the monthly payment. For adjustable-rate loans, the interest rate may change from its initial level.

lender
A bank, savings institution, or mortgage company that offers home loans.

loan application
The first step toward submitting a home loan requires the borrower to itemize basic financial information.

mortgage
In casual use, a sum of money borrowed to purchase a home at a certain interest rate using the property as collateral. In formal use, a mortgage is the legal document that pledges property as collateral for a loan.

mortgage banker
A company that provides home loans using its own money. The loans are usually sold to investors such as insurance companies and Fannie Mae.

mortgage broker
A company that matches lenders with prospective borrowers who meet the lender's criteria. The mortgage broker does not make the loan, but receives payment from the lender for services.

mortgage-interest deduction
The tax write-off that the Internal Revenue Service allows most owners to claim for annual interest payments made on real estate loans.

prequalification
A lender's preliminary assessment of a buyer's ability to pay for a home, and an estimate of how much the buyer may borrow.

refinancing
The process of replacing an older mortgage with a new mortgage that has better terms.

underwriting
The process in which lenders evaluate the risks posed by a particular borrower and set appropriate conditions for the loan.