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Mortgage Terms
Common Mortgage Terms:
Adjustable-Rate Mortgage (ARM)
A home loan where your interest rate isn’t set in stone. It starts with a fixed rate for a few years, then adjusts periodically based on market trends—meaning your monthly payments could go up or down.
Amortization
The process of paying off your mortgage through scheduled monthly payments that include both principal and interest.
Annual Percentage Rate (APR)
The total cost of your loan expressed as a yearly rate, including your interest rate plus any fees or additional costs.
Appraisal
An evaluation by a licensed appraiser to determine the market value of a property, required by lenders to ensure the home is worth the purchase price.
Assumable Mortgage
A mortgage that lets a buyer step into the seller’s shoes and take over the existing loan—same terms, same balance, and often, the same interest rate.
Balloon Mortgage
A type of mortgage with lower monthly payments upfront, but a big “balloon” payment due at the end of the term. Best for short-term homeowners or those planning to refinance.
Balloon Payment
The large, lump-sum payment due at the end of a balloon mortgage. It covers the remaining loan balance after smaller monthly payments.
Buydown
A financing technique where you (or the seller) pay extra money upfront to reduce your interest rate temporarily, easing into full payments over time.
Cash-Out Refinane
Refinancing your home for more than you owe and taking the difference in cash—often used for renovations, debt consolidation, or big purchases.
Closing Costs
Fees and expenses you pay when you close on your home, including lender fees, title insurance, appraisal, and other third-party charges.
Closing Disclosure (CD)
A detailed five-page document you receive before closing that breaks down your loan terms, monthly payments, and what you owe at the closing table.
Conforming Loan
A mortgage that fits the standards set by Fannie Mae and Freddie Mac—meaning it stays within a certain loan limit and meets eligibility rules.
Conventional Loan
A standard mortgage not backed by the government. You usually need a higher credit score and a bigger down payment, but you avoid extra fees like mortgage insurance after 20% equity.
Credit Score
A three-digit number summarizing your credit history. Lenders use it to predict how reliably you’ll pay back a loan.
Debt-to-Income Ratio (DTI)
A calculation comparing your total monthly debts to your gross monthly income. Lenders use DTI to assess your ability to repay the loan.
Deed
The official legal document that proves you’re the new owner of the property.
Discount Points
Prepaid interest you can buy to lower your mortgage rate. One point usually costs 1% of your loan amount.
Down Payment
The amount of money you pay upfront toward the purchase price of your home. This is typically a percentage of the total price.
Earnest Money
A good-faith deposit made when you put in an offer. It shows the seller you’re serious, and it goes toward your closing costs or down payment.
Escrow
An account used to hold funds for property taxes and homeowner’s insurance, collected as part of your monthly mortgage payment.
Equity
The portion of your home’s value that you own outright, calculated as your home’s market value minus your outstanding mortgage balance.
FHA Loan
A mortgage insured by the Federal Housing Administration that offers lower down payment options and flexible credit requirements.
Fixed-Rate Mortgage
A home loan with an interest rate that remains the same for the entire term of the loan, providing predictable monthly payments.
Forbearance
A temporary pause or reduction in mortgage payments, typically granted during times of financial hardship.
Home Equity Line of Credit (HELOC)
A flexible line of credit that lets you borrow against your home’s equity—kind of like a credit card, but with your house as collateral.
Home Equity Loan
A lump-sum loan that uses your home’s equity as collateral. Often used for major expenses like home improvements.
Home Inspection
A professional assessment of the property’s condition before purchase, so you know exactly what you’re buying.
Homeowners Insurance
Insurance that protects your home and belongings from events like fire, theft, and weather damage. It’s typically required by lenders.
Interest-Only Mortgage
A loan where you only pay interest for the first few years—giving you lower initial payments—before switching to full principal and interest payments.
Interest Rate
The cost of borrowing money, expressed as a percentage of your loan amount.
Jumbo Loan
A mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac, used to finance higher-priced properties.
Loan Estimate (LE)
A standardized form that outlines the important details of your mortgage, including estimated interest rate, monthly payment, and closing costs.
Loan-to-Value Ratio (LTV)
A percentage comparing your loan amount to the appraised value of your home. The higher the LTV, the more you might pay in interest or insurance.
Mortgage
A loan that helps you buy or refinance a home. Your house acts as the collateral until the loan is paid off.
Mortgage Broker
A licensed pro who shops around on your behalf, connecting you with lenders and helping you find the best loan.
Mortgage Insurance
Protection for the lender in case you default. Required for certain loans, especially if your down payment is under 20%.
Mortgage Servicer
The company that handles your monthly payments, escrow accounts, and other loan management tasks after closing.
Non-QM Mortgage
A flexible loan option for borrowers who don’t meet standard lending guidelines, like self-employed individuals or those with non-traditional income.
Origination Fee
A one-time fee paid to your lender for processing your loan, often a small percentage of the loan amount.
PITI
Short for Principal, Interest, Taxes, and Insurance—the four key parts of a typical monthly mortgage payment.
Pre-Approval
A letter from a lender stating how much you’re approved to borrow, based on a deep dive into your finances.
Prepayment Penlty
A fee charged by some lenders if you pay off your mortgage early—usually within the first few years.
Principal
The amount of money you borrow to buy your home, not including interest.
Private Mortgage Insurance (PMI)
Insurance required on conventional loans when your down payment is less than 20%, protecting the lender if you default on the loan.
Rate Lock
A lender’s promise to hold your interest rate steady for a specific time period, even if market rates go up.
Refinance
Replacing your existing mortgage with a new one, often to lower your interest rate, reduce your monthly payment, or tap into home equity.
Reverse Mortgage
A loan available to homeowners 62 and older that turns part of your home’s equity into cash, without requiring monthly payments.
Term
The length of your loan agreement. Most common: 15, 20, or 30 years.
Title Insurance
Insurance that protects against any legal issues with the ownership of the property, such as liens or disputes over who owns it.
Underwriting
The process where the lender reviews your financial information to decide if you qualify for the mortgage.
USDA Loan
A mortgage backed by the U.S. Department of Agriculture, offering no down payment options for eligible rural and suburban homebuyers.
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs, available to eligible veterans, active-duty service members, and surviving spouses with no down payment requirement.
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