Here's How to Finance Your Remodel

Lending Lingo

APR Annual percentage rate. The bottom-line cost of a mortgage, with all the up-front fees factored in with the base interest rate

ARM Adjustable-rate mortgage

Closing costs Fees paid with the down payment, such as origination fee, discount points, title insurance, appraisal, and credit report

Discount points A chunk of interest paid up front. Points compensate a lender making a higher-risk loan by increasing interest paid up front without a rate hike. One point equals 1 percent of the loan.

Equity A homeowner's interest in the property, determined by subtracting the loan balance from the appraisal

Good-faith estimate A mortgage lender's disclosure of all the expected costs before the closing of a loan

Line of credit A loan in which the borrower can draw more or less money (up to a certain limit) instead of starting at one fixed amount

Loan-to-value ratio The percentage of the appraisal of a home on which lenders base the size of a loan

Loan-origination fee A one-time fee lenders charge when they make a mortgage loan — usually 1 to 2 percent of the loan amount

Mortgage A loan that starts at one amount and is gradually paid off through fixed monthly payments for a fixed amount of time

Mortgage broker A loan source that does not represent one particular institution, but originates loans from many lenders

PITI Principal, interest, taxes, and insurance, the main monthly costs of owning a home with a mortgage

PMI Private mortgage insurance. Protects a lender from loss in case of loan default. PMI usually is required on loans with a loan-to-value ratio greater than 80 percent.

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