• When purchasing a mortgage, many borrowers are confused by the terminology used by lenders. There are several mortgage terms that are not used in every day language that can easily be misunderstood. With the basic knowledge of several standard mortgage terms, a borrower can more confidently go into a mortgage transaction and select the best terms for his financial situation.
  
  

Escrow

• Many mortgage payments include a smaller escrow payment in addition to the principal and interest payment. This smaller payment is saved in a separate account with the lender and used to pay bills associated with the house debt, typically insurance and real estate taxes. Borrowers can choose to "waive escrow" to avoid making this additional monthly payment by simply paying the insurance and taxes out of pocket when they are due, according to the Mortgage Professor website. However, many lenders will charge the borrower a fee or increased interest rate for waiving that monthly payment. This is to cover the risk to the lender if you do not pay either bill on time, or at all.
  
  

APR: Annual Percentage Rate

• Many borrowers confuse APR and interest rate. The interest rate is the monthly fee charged to the borrower against the remaining principal balance of the loan. The APR, or annual percentage rate, is the numerical representation of the total cost of the mortgage for a full year. This number includes both the monthly interest rate and any fees or costs associated with the debt. During the mortgage purchase process, the APR is a tool that borrowers can use to effectively compare mortgage offers. The mortgage with the lowest APR is the lowest overall cost mortgage, regardless of interest rate. This is because many lenders charge borrowers points, or additional fees, to purchase a lower interest rate than what is available on the market today. Typically, unless the borrower plans on staying in the mortgage for a significant time, several years or more, paying points not a wise decision.
  
  

Term

• The term is the length of the loan. The term plays a large role in the monthly payment as well as the overall interest paid on the debt. For example, if a borrower chooses a 15-year term as opposed to a 30-year term, his monthly payment may be almost double but the interest paid over the life of the debt is significantly less. The longer the term, the more interest paid but the lower the monthly payment.