Banking Terms You Should Know Before Buying a Home
Buying a home is one of life’s biggest financial decisions. It’s exciting, but it also comes with a lot of unfamiliar terms that can make the process feel overwhelming. Understanding a few key banking and mortgage terms can help you feel more confident and informed as you begin your homebuying journey.
At St. Johns Bank, we believe in empowering our customers with knowledge, especially when it comes to such a significant milestone.
APR (Annual Percentage Rate)
APR represents the total cost of borrowing, including both interest and fees, expressed as a yearly rate. Unlike the interest rate alone, APR gives you a more complete picture of what you’ll actually pay over time. When comparing loan offers, a lower APR usually means a better deal.
Learn more about the difference between a mortgage interest rate and APR.
Equity
Equity is the portion of your home that you truly "own," the difference between your home's market value and the balance of your mortgage. As you make mortgage payments or your home increases in value, your equity grows. Equity can later be used to secure loans or lines of credit for things like renovations or education expenses.
PMI (Private Mortgage Insurance)
If your down payment is less than 20%, your lender may require PMI. This insurance protects the lender in case you default on your loan. It's an additional monthly cost, so be sure to factor it into your budget.
Fixed vs. Adjustable Rate Mortgages
With a fixed-rate mortgage, your interest rate stays the same for the life of the loan. An adjustable-rate mortgage (ARM) starts with a lower rate that may increase or decrease over time based on market trends. Each has benefits depending on your financial goals and how long you plan to stay in the home.
Closing Costs
These are the fees and expenses, outside of your loan amount, that you’ll pay when finalizing your home purchase. They typically range from 2% to 5% of the purchase price and may include things like title insurance, appraisal fees, and attorney costs.
For more details, visit USA.gov’s guide to homebuying.
Buying a home doesn't have to be confusing. When you work with a trusted local lender like St. Johns Bank, you get personalized guidance every step of the way. Contact us today to speak with a mortgage expert and start your journey home.