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Understanding Mortgage Language

If you are new to the mortgage industry, it can sometimes be overwhelming to understand all of the terminology and expressions used. Our first priority at Northpoint Mortgage is to help regular people become informed clients, which is why we are happy to provide you with definitions of common terms within the mortgage space. This will help the public better grasp the written content on our website, and also make understanding our loan officers a lot easier. As always, if you have questions or want to talk to a real person, we’re available to help.


Home equity is the value of a homeowner’s interest in their home. In other words, it is the real property’s current market value (less any liens that are attached to that property). The amount of equity in a house—or its value—fluctuates over time as more payments are made on the mortgage and market forces impact the current value of the property.


The principal is the amount which a borrower owes on a loan and must pay back to the lender.

Mortgage Interest

Mortgage interest is the percentage charged on a mortgage that must be paid in addition to the principal. The mortgage interest rate is related to prevailing interest rate levels and may be fixed or adjustable.

Escrow Account

Escrow is a legal arrangement in which a third party temporarily holds large sums money or property until a particular condition has been met (e.g., the fulfillment of a purchase agreement).

Down Payment

A down payment is a type of payment, often in cash, made in the early stages of a purchase of an expensive product. The payment represents a percentage of the full purchase price.

Closing Costs

Closing costs are the expenses, over and above the price of the property, that buyers and sellers normally incur to complete a real estate transaction.


An appraisal is a valuation of property, such as real estate, a business, collectible, or an antique, by the estimate of an authorized person. The authorized appraiser must have a designation from a regulatory body governing the jurisdiction of the appraiser.

Good Faith Estimate

The term good faith estimate (GFE) refers to a document that outlines the estimated costs and terms of a mortgage loan offer. GFEs provide consumers with basic information about the offer including a breakdown of costs.

Rate Lock

A quoted mortgage rate means basically nothing until it’s actually locked by the lender on your behalf. Once it’s locked in, the rate won’t be subject to changes even if mortgage rates rise and fall as your loan application is processed and eventually funded.

Just be sure to close on time to avoid having to pay a lock extension fee!

Adjustable Rate Mortgage

A variable-rate mortgage, adjustable-rate mortgage, or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. The loan may be offered at the lender's standard variable rate/base rate.


Mortgage underwriting is the process a lender uses to determine if the risk of offering a mortgage loan to a particular borrower is acceptable and is a part of the larger mortgage origination process.

Earnest Money

Earnest money is a deposit made to a seller that represents a buyer's good faith to buy a home. The money gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing.

Closing Costs

Expenses over and above the cost of the property, which can include items such as title insurance, appraisal, processing, underwriting, and surveying fees.


The legal document that transfers property from one owner to another.


The gradual reduction of debt over the term of the loan. Amortization occurs through repayment of principal.

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