Intermediate terms

High-Interest Rate Environment: Key Terms

This collection offers carefully selected key terms that might be helpful when exploring strategies for today's elevated interest rate environment. It provides clear explanations for commonly referenced concepts, supporting your understanding of financing options and market dynamics.

Learning Path

Fixed-Rate Mortgage

A fixed-rate mortgage is a home loan with an interest rate that remains unchanged for the entire loan term, providing stable and predictable monthly payments.

Beginner13-14 min

Discount Points

Discount points are an upfront fee paid to a lender at closing in exchange for a lower interest rate on a mortgage loan, effectively pre-paying some of the interest.

Intermediate5-6 min

Refinancing

Refinancing is the process of replacing an existing mortgage or loan with a new one, often to secure better terms, lower interest rates, or access built-up property equity.

Intermediate15-18 min

Affordability

Affordability in real estate refers to a buyer's ability to comfortably manage the costs associated with purchasing and owning a property, considering their income, debts, and current market conditions.

Beginner5 min

Payment Shock

Payment shock refers to a significant and unexpected increase in a borrower's monthly mortgage payment, often due to an adjustable-rate mortgage (ARM) resetting, or changes in property taxes and insurance premiums held in escrow.

Intermediate5-6 min

Rate Buydown

A rate buydown is a financing strategy where an upfront fee is paid to reduce the interest rate on a mortgage, either temporarily for the initial years or permanently for the life of the loan. This lowers monthly mortgage payments and enhances affordability.

Intermediate5 min

Mortgage Rate Lock

A mortgage rate lock is a lender's guarantee to hold a specific interest rate for a set period, protecting borrowers from rising rates during the loan application and closing process.

Intermediate5 min

Interest Rate

An interest rate is the percentage charged by a lender for the use of borrowed money, typically expressed as an annual percentage of the principal amount.

Beginner15-18 min

Permanent Rate Buydown

A permanent rate buydown is a mortgage financing strategy where a borrower or seller pays an upfront fee, known as discount points, to reduce the interest rate on a loan for its entire term, resulting in lower monthly payments.

Intermediate2-3 min

Principal and Interest (P&I)

Principal and Interest (P&I) refers to the portion of a loan payment that repays the original borrowed amount (principal) and covers the cost of borrowing (interest), forming the core of a mortgage payment.

Intermediate13-17 min

Interest Rate Risk

Interest rate risk is the potential for investment losses or reduced returns due to adverse changes in market interest rates, significantly impacting real estate valuations, financing costs, and cash flow projections.

Advanced5 min

Debt-to-Income Ratio

The Debt-to-Income (DTI) Ratio is a financial metric used by lenders to assess a borrower's ability to manage monthly payments and repay debts, calculated by dividing total monthly debt payments by gross monthly income.

Intermediate18-20 min

Adjustable-Rate Mortgage

An Adjustable-Rate Mortgage (ARM) is a home loan where the interest rate can change periodically based on an index, leading to fluctuating monthly payments after an initial fixed-rate period.

Beginner14-15 min