What is the common term for the initial payment made by the borrower at the time of closing?

The initial payment made by the borrower at the time of closing is commonly referred to as the down payment. This amount is crucial because it represents a portion of the purchase price that the borrower pays upfront, reducing the loan amount needed from the lender. The down payment is significant as it often influences the terms of the mortgage, including the interest rate and whether private mortgage insurance (PMI) is required. A larger down payment typically indicates to lenders that the borrower has a lower risk profile, potentially leading to more favorable lending terms.

In contrast, closing costs refer to various fees and expenses associated with finalizing a mortgage transaction, which can include loan origination fees, title insurance, and appraisal fees. These costs are separate from the down payment and are usually paid at the closing meeting. Escrow payments are funds held by a third party to cover future property taxes and insurance, while principal payments are the portions of the loan that pay down the loan balance over time. Understanding the distinction between these terms is essential for borrowers to effectively navigate the mortgage process.