Mortgage types, amortization, cap rate, and other core real estate financing terms for everyday learners.
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- What is a fixed-rate mortgage?
- A mortgage where the interest rate stays the same for the entire loan term.
- What is an adjustable-rate mortgage (ARM)?
- A mortgage where the interest rate changes periodically, usually starting lower than fixed rates.
- Define amortization.
- The process of paying off a loan through regular installments of principal and interest over a set period.
- What is a capitalization rate (cap rate)?
- The annual rate of return on a real estate investment property, calculated by dividing net operating income by property value.
- What does loan-to-value (LTV) ratio measure?
- The percentage of a property's value that is financed through a loan (loan amount divided by property value).
- What is principal in a mortgage?
- The original amount of money borrowed in a mortgage, not including interest.
- What is interest in a mortgage?
- The charge imposed by the lender for borrowing money, expressed as a percentage of the principal.
- What is a down payment?
- The amount of money a buyer pays upfront to reduce the loan amount needed to purchase a property.
- What are closing costs?
- Fees and expenses paid at the closing of a real estate transaction, including appraisal, title search, and loan origination fees.
- What is an escrow account?
- A neutral account held by a third party during a transaction, used to hold funds until the transaction conditions are met.
- What is the difference between preapproval and prequalification?
- Prequalification is an estimate of borrowing power; preapproval involves verification of financial information and carries more weight.
- What are discount points?
- Fees paid upfront to reduce the interest rate on a mortgage, with each point typically costing 1% of the loan amount.
- What is the difference between APR and interest rate?
- The interest rate is the percentage charged on principal; APR includes the interest rate plus other costs and fees expressed as an annual rate.
- What is an amortization schedule?
- A table showing each loan payment with the amount going to principal and interest, plus the remaining balance after each payment.
- What is equity in a property?
- The difference between the current market value of a property and the amount owed on the mortgage.