Real Estate Terms Everyone Should Know

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Around 6 million people purchased homes in 2019. Approximately 33% of those people were first-time homebuyers. If you are considering a home purchase, it is crucial to understand what the most common mortgage terms mean. Some words are self-explanatory; others are not. Knowing these can help you navigate through one of the more confusing aspects of homebuying.

Adjustable-Rate Mortgage

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An adjustable-rate mortgage or ARM has a flexible interest rate that changes over time. This can vary your monthly payment drastically depending on the National Interest Rate. Sometimes the fluctuation makes your payment lower, but it can also make it higher as well.

Balloon Payment Mortgage

A mortgage where the last payment is considerably higher than the others, essentially paying off the mortgage. You hear this term more when dealing with investment property than other types. When you have a balloon payment, you either have to refinance your home before the end of the term or have the money to pay that final payment.


contingency is an agreement or stipulation that needs to be satisfied before the home is sold. This could be a home inspection or repair. Many mortgage companies will put contingencies on a property before lending money.


An encumbrance is any monetary lien that lowers the home’s value, usually lien, such as a tax lean, EPA lien, or mortgage. If a property is encumbered, the amount of the encumbrance must be paid before the property changes hands. This is done before the sale, or it is included in the buyer’s mortgage.

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Prepayment Clause

A penalty that you pay when you pay off your mortgage in advance. Bank loans with a prepayment clause usually force you to pay off things like interest before you can pay off the mortgage.

Buying a house can be an enjoyable experience if you know what you are doing. These are just a few of the terms you should know while you shop for your new home.

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