Buying a home can be exciting, but it can also be overwhelming at times, especially if you’re not familiar with all the specific words and phrases that are part of the mortgage process. This vocabulary can be a lot to learn and remember, even if you’ve bought a home before!

Below, we’ve broken down some of the more common mortgage terms you might encounter to help you navigate your next homeownership search with confidence.

Principal: The portion of your monthly payment that is used to reduce your actual loan balance.

Equity: How much of your home you own. In other words, how much of the principal loan you’ve paid off. As we’ve discussed in previous issues of this newsletter, you can find your equity by subtracting your outstanding mortgage balance from the current value of your home.

Seller Concessions: These are certain costs associated with homebuying that the seller agrees to pay. This can include repairs and/or closing costs.

APR: This stands for annual percentage rate, and is the cost of credit expressed as a yearly rate. APR is closely related to your interest rate, but they are not always the same. That’s because in addition to the interest rate, the APR may include points, fees, and other credit charges that the borrower is required to pay.

Discount Point: Discount points are optional fees paid at closing that lower your interest rate. Essentially, discount points let you make a tradeoff between your closing cost fees and your monthly payment. By paying discount points, you pay more in fees upfront but receive a lower interest rate, which lowers your monthly payment so you pay less over time.

Lender Credit: This is when a lender gives you money to offset your closing costs. This often happens in exchange for a higher interest rate, for example, in which case you’d pay less money up front but more over the long run because of a higher rate.

Mortgage Rate Lock: A mortgage rate lock (or "lock-in") is a guarantee that your interest rate won't change from the time you’re approved for a loan to closing, as long as you close within the specified timeframe and there are no changes to your application. If your rate is locked, that means it won’t change as a result of market fluctuations, although it could change if there are updates to your application – such as with your loan amount, credit score or verified income.

Escrow: Escrow plays two roles in the homebuying and mortgage process. First, it refers to a temporary financial arrangement where a neutral third party holds your earnest money until a home sale is finalized. Later, after you purchase your home, your Bell Bank Mortgage lender will set up an escrow account to collect funds for and pay property taxes and/or insurance premiums as part of your monthly mortgage payment.