Finance Terms Every Agent Must Know

Amortization: Process of paying off a loan through regular payments of principal and interest. Early payments are mostly interest; later payments are mostly principal.

APR (Annual Percentage Rate): Total cost of loan expressed as yearly rate, including interest + fees. Higher than stated interest rate.

Points: Upfront fee paid to reduce interest rate. 1 point = 1% of loan. "Buying down" the rate.

PMI (Private Mortgage Insurance): Required when LTV exceeds 80%. Protects lender, not borrower. Cancelled when equity reaches 20%.

ARM index and margin: ARM rate = Index + Margin. Common indexes: SOFR, Treasury rate.

Assumable mortgage: Buyer takes over seller's existing mortgage. Valuable when rates are high.

Balloon mortgage: Low payments based on long amortization, but full remaining balance due at end of shorter term (e.g., 30-year amortization, 5-year balloon).

Due-on-sale clause: Requires full loan payoff when property is sold. Prevents most assumptions.

Prepayment penalty: Fee for paying off loan early. Less common today but still exists.

Reference:

Wikipedia: Amortization

https://en.wikipedia.org/wiki/Amortization_(business)