If you’re a first time home buyer, listening to your lender or your mortgage broker can be a little like trying at times. This article lists some common mortgage terms that you might hear as you negotiate your first home loan.

These quick explanations are just to get you better informed. If your looking for more specific information, feel free to contact our home loan advisors or use an mortgage glossary for terms that you might need more details on.

Here is a quick breakdown:

Adjustable Rate Mortgage (ARM)

The interest rate of an adjustable rate mortgage changes over time depending on changes in the APR. This means that monthly payments may go up or down over time.

Amortization

According to the mortgage glossary, amortization is simply your monthly payment less the interest. To put it another way, it is the amount you are paying to build equity in your home.

Bridge Loan

A bridge loan is a short term loan to help someone who is forced to buy a new house before selling their old one. The money is borrowed against a certain percentage of equity in the first home and is used to help pay down payments and closing costs on the second home.

Closing

Closing is the official transfer of ownership of the property from the seller to the buyer. At closing, the buyer is usually responsible for paying closing costs or settlement costs such as loan origination fees, points, and the first year of private mortgage insurance.

Credit Score

During the loan approval process, lenders will express a great deal of interest in your credit, or FICO, score. This score is based on different events in your credit history such as making payments on time, taking a bankruptcy, or having a high debt to income ratio. The lower your credit score, the more trouble you will have finding a favorable deal on a mortgage.

Fixed Rate Mortgage

A fixed rate mortgage is a mortgage in which the mortgage rate, or interest rate, does not change throughout the life of the loan. This means that the monthly payments remain the same over time.

Mortgage Insurance (PMI)

If your down payment is less than 20% of the value of the home, you will be required to purchase private mortgage insurance. This protects the lender if you default from the loan.

Qualification

Qualification is simply an educated guess on the part of the lender as to how much you probably qualify to borrow. It should not be confused with pre-approval. During the pre-approval process, the lender looks at your financial documents and runs a credit check. The lender then gives you a letter, usually good for thirty days, stating how much money you have been pre-approved to borrow.

Even with a mortgage glossary on hand, mortgage terms can be somewhat confusing to the first time buyer. Pay close attention to what your lender is telling you, and don’t be shy about asking questions about terms you don’t understand.