Common Mortgage and Housing Terms

Adjustable-Rate vs Fixed-Rate Mortgages

An adjustable-rate mortgage (ARM) has an interest rate that can change over time, causing monthly payments to increase or decrease. In contrast, a fixed-rate mortgage keeps the interest rate constant, ensuring stable payments throughout the loan term.

Home Equity and Home Value

Home equity is the portion of your property that you fully own, calculated as your home’s current value minus the outstanding mortgage. Meanwhile, the home value reflects the estimated market price at any given time.

Mortgage Insurance and Payments

If your down payment is less than 20%, mortgage insurance is usually required to protect the lender. Some loan programs, such as FHA and USDA loans, require mortgage insurance even for higher down payments.

Your monthly mortgage payment includes principal, interest, taxes, and insurance. Additionally, homeowners insurance protects your property and belongings while providing liability coverage.

Renting Basics

For renters, rent payments are the monthly amounts paid to the landlord. If the landlord increases rent, this is called a rent increase. A security deposit is usually paid upfront to cover potential damages, often equal to one month’s rent.

Housing Costs and Loan Amount

Housing costs include mortgage payments, insurance, property taxes, and HOA fees. Upfront costs include down payment, closing costs, and other fees. The loan amount is the money borrowed from a lender.

By understanding these terms, homeowners and renters can plan finances better, compare options, and make informed decisions when buying, renting, or refinancing a property.