Mortgage Glossary
Common mortgage terms, in plain English. Have a question we don’t cover? Contact us and we’ll explain it.
Adjustable-Rate Mortgage (ARM)
A loan whose interest rate can change over time after an initial fixed period, based on a market index.
Amortization
The schedule of paying off your loan over time through regular payments of principal and interest.
Annual Percentage Rate (APR)
The yearly cost of a loan including the interest rate plus most fees — useful for comparing offers.
Appraisal
A licensed appraiser’s independent estimate of a home’s market value, required by most lenders.
Closing Costs
The fees paid to finalize a mortgage (appraisal, title, lender, and more), typically a few percent of the loan.
Conventional Loan
A mortgage not backed by a government program like FHA or VA; often requires stronger credit and a larger down payment.
Debt-to-Income Ratio (DTI)
Your monthly debt payments divided by your gross monthly income — a key factor in qualifying.
Down Payment
The upfront portion of a home’s price you pay out of pocket; the rest is financed.
Equity
The portion of your home you own outright — its value minus what you still owe.
Escrow
An account your lender uses to hold and pay property taxes and insurance on your behalf.
FHA Loan
A government-backed loan with low down payments (as little as 3.5%) and flexible credit guidelines.
Fixed-Rate Mortgage
A loan with an interest rate that stays the same for the entire term.
HELOC
A home equity line of credit — a revolving line secured by your home’s equity that you draw on as needed.
Interest Rate
The percentage charged on your loan balance, separate from the APR.
Jumbo Loan
A mortgage that exceeds conforming loan limits and typically has stricter requirements.
Loan-to-Value Ratio (LTV)
Your loan amount divided by the home’s value — lower LTV usually means better terms.
Mortgage Insurance (PMI / MIP)
Insurance that protects the lender when your down payment is small; PMI on conventional loans, MIP on FHA.
Origination Fee
A lender’s charge for processing a new loan, usually a percentage of the loan amount.
Points (Discount Points)
Optional upfront fees you can pay to lower your interest rate — one point equals 1% of the loan.
Pre-Approval vs. Pre-Qualification
Pre-qualification is a quick estimate; pre-approval is a verified review that makes your offer stronger.
Principal
The amount you borrowed (and still owe), not counting interest.
Rate Lock
A lender’s guarantee to hold a quoted interest rate for a set period while your loan is processed.
Refinance
Replacing your current mortgage with a new one to lower your rate, change your term, or take cash out.
Underwriting
The lender’s review of your credit, income, and the property to decide whether to approve the loan.
VA Loan
A loan guaranteed by the Department of Veterans Affairs offering $0 down and no PMI for eligible borrowers.