Mortgage Glossary

A comprehensive dictionary of mortgage terms and definitions to help you understand the language of home financing.

A
Adjustable-Rate Mortgage (ARM)

A mortgage loan where the interest rate can change periodically based on changes in a corresponding financial index.

Amortization

The process of paying off a loan through regular payments over time. Each payment includes both principal and interest.

Annual Percentage Rate (APR)

The total cost of borrowing expressed as a yearly rate, including interest and fees.

Appraisal

A professional assessment of a property's market value conducted by a licensed appraiser.

C
Closing Costs

Fees and expenses paid when finalizing a mortgage, typically 2-5% of the loan amount.

Conventional Loan

A mortgage loan that is not insured or guaranteed by the government.

Credit Score

A numerical representation of creditworthiness based on credit history, typically ranging from 300 to 850.

D
Debt-to-Income Ratio (DTI)

The percentage of gross monthly income that goes toward paying debts.

Down Payment

The upfront cash payment made when purchasing a home, expressed as a percentage of the purchase price.

E
Escrow

An account held by the lender to pay property taxes and homeowners insurance on your behalf.

F
FHA Loan

A mortgage insured by the Federal Housing Administration, designed for borrowers who may not qualify for conventional loans.

Fixed-Rate Mortgage

A mortgage where the interest rate remains constant throughout the entire loan term.

H
Home Equity

The portion of your home that you own outright, calculated as current market value minus outstanding mortgage balance.

I
Interest Rate

The percentage charged by the lender for borrowing money, expressed as an annual rate.

L
Loan-to-Value Ratio (LTV)

The ratio of your loan amount to the appraised value of the property, expressed as a percentage.

M
Mortgage Insurance

Insurance that protects the lender if you default on your loan, required when down payment is less than 20%.

P
Points

Fees paid to the lender at closing to reduce your interest rate. One point equals 1% of the loan amount.

Pre-Approval

A lender's conditional commitment to lend you a specific amount based on a thorough review of your financial information.

Principal

The original amount of money borrowed from the lender, excluding interest.

Private Mortgage Insurance (PMI)

Insurance required on conventional loans when the down payment is less than 20%.

R
Refinancing

Replacing your existing mortgage with a new loan, typically to get a lower interest rate or change the loan term.

T
Title Insurance

Insurance that protects against financial loss from defects in the title to your property.

U
Underwriting

The process by which a lender evaluates your loan application to determine the risk of lending to you.

V
VA Loan

A mortgage guaranteed by the Department of Veterans Affairs for eligible military members, veterans, and surviving spouses.