The ABCs of ARMs: Decoding Mortgage Jargon

Home mortgages.

What was the last purchase you researched before buying? Was it a $50 toaster, or maybe a $200 smartphone? What about a $200,000 house?

For all of the Consumer Reports and Yelp reviews we read, many homebuyers enter into the process of taking out a home loan with little or no knowledge of how mortgages work. Buying a house may be the most expensive purchase you ever make, and a little mortgage education can go a long way toward getting you a good deal. Here are a few mortgage terms you should brush up on before signing on any dotted lines.

Adjustable rate mortgage (ARM)

The interest rates on an ARM can change over the course of the loan, and are typically beneficial if you plan to be in your home for a short time. Find out whether an adjustable rate mortgage is right for you.

Annual percentage rate (APR)

The interest rate on a mortgage is its APR. This is the percentage of the loan amount that you will pay each year in interest.

Application fee

Some lenders charge a fee that covers the cost of property appraisals, credits reports and other expenses.

Closing costs/settlement costs

This covers any costs associated with buying or selling a home, and can include origination fees, escrow payments, attorney fees, title insurance and discount points. Be sure to review these with your mortgage broker to better understand the purpose of each fee.

Fixed rate mortgage (FRM)

Interest rates on a FRM stay the same through the life of the loan. Check out our fixed mortgage calculator to find out what your monthly mortgage payments would be with a FRM.

Term

The length of the mortgage loan in years. Common terms lengths are 10, 15 and 30 years.

If you’re thinking about buying or selling a home, brush up on these and other mortgage terms, and review some home inspection deal-breakers to look out for when real-estate shopping.

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