Mortgage Terms Glossary

A mortgage with an interest rate that starts fixed for a set period (like 5 or 7 years) and then adjusts periodically based on market conditions. Often starts with a lower rate than a fixed-rate loan.

The process of paying off a loan over time through regular payments. Each payment is split between interest and principal — early payments are mostly interest, and later payments pay down more principal.

A table showing every payment over the life of your loan, breaking down how much goes toward principal versus interest, and your remaining balance after each payment.

The all-in yearly cost of your loan, expressed as a percentage. Unlike the interest rate alone, APR also factors in certain fees and costs, giving you a more complete way to compare loan offers.

A licensed, independent appraiser's professional estimate of a home's market value, based on its condition, features, and recent sales of similar nearby homes. Lenders require one to make sure they're not lending more than the home is actually worth.

A large, lump-sum payment due at the end of certain loan terms, after making smaller regular payments that don't fully pay off the loan.

Refinancing for more than you currently owe, and taking the difference in cash based on your home's equity.

Fees and expenses (beyond the down payment) due at closing, typically 2–5% of the loan amount. Includes things like appraisal fees, title insurance, recording fees, and lender fees.

A standardized 5-page form you receive at least 3 business days before closing, spelling out your final loan terms, monthly payment, and closing costs. Compare it against your Loan Estimate to catch any surprises.

Recently sold homes similar in size, location, condition, and features to the one being appraised or listed. Appraisers and real estate agents use comps to help determine a fair market value.

A conventional loan that meets Fannie Mae and Freddie Mac's size and guideline limits, as opposed to a jumbo (non-conforming) loan.

A condition that must be met for a real estate contract to move forward, such as a financing contingency, appraisal contingency, or inspection contingency.

A mortgage not backed by a government agency (FHA, VA, USDA) — instead it follows guidelines set by Fannie Mae and Freddie Mac.

A three-digit number (typically 300–850) summarizing your creditworthiness based on your credit history. Higher scores generally unlock better interest rates.

Used for investment property loans — compares a property's rental income to its mortgage payment, letting investors qualify without verifying personal income. See our Loan Programs page for more.

Your total monthly debt payments (car loans, credit cards, student loans, etc.) divided by your gross monthly income, expressed as a percentage. Lenders use it to gauge how much additional debt — like a mortgage — you can comfortably handle.

The portion of the home's purchase price you pay upfront in cash, with the rest financed through your mortgage.

A deposit you put down when making an offer on a home, showing you're serious ("in earnest"). It's typically held in escrow and applied toward your down payment or closing costs at closing.

The portion of your home you actually "own" — the difference between your home's current market value and what you still owe on your mortgage.

A neutral third party that holds funds or documents until certain conditions are met. Used both during the home-buying process (holding earnest money) and afterward (collecting a portion of your property taxes and insurance each month).

An account your loan servicer maintains to collect a portion of your property taxes and homeowners insurance with each mortgage payment, then pays those bills on your behalf when due.

A mortgage with an interest rate that never changes for the life of the loan, so your principal-and-interest payment stays the same every month.

A revolving line of credit secured by your home's equity, letting you borrow, repay, and borrow again up to a set limit — similar to a credit card.

Fees paid to a community association that maintains shared spaces and enforces community rules — common in condos, townhomes, and some planned neighborhoods.

Insurance covering your home against damage from fire, storms, and other covered events. Lenders require it for as long as you have a mortgage.

The percentage a lender charges you annually to borrow money, expressed separately from APR (which includes additional fees).

A mortgage for an amount above the conforming loan limit set by federal regulators, typically requiring stronger credit and a larger down payment.

A standardized form lenders must provide within 3 business days of applying, outlining your estimated interest rate, monthly payment, and closing costs. Makes it easier to compare offers from different lenders.

Your loan amount divided by the home's appraised value (or purchase price, whichever is lower), expressed as a percentage. A lower LTV — meaning more down payment — usually means better terms.

Insurance required on FHA loans, consisting of an upfront premium and an ongoing annual premium, protecting the lender if you default.

A fee a lender charges for processing your loan application, usually calculated as a percentage of the loan amount.

Shorthand for the four components of a typical monthly mortgage payment: Principal, Interest, Taxes, and Insurance.

Optional upfront fees you can pay at closing to lower your interest rate. One point typically costs 1% of your loan amount.

A lender's conditional commitment to loan you a specific amount, based on verifying your income, assets, credit, and debts. Carries more weight with sellers than a pre-qualification.

An informal, non-verified estimate of what you might be able to borrow, based on information you self-report. A useful starting point, but not as strong as a pre-approval.

The amount of money you originally borrowed (or currently owe), not including interest.

Insurance required on conventional loans when you put down less than 20%, protecting the lender — not you — if you default. Cancels automatically once you reach roughly 78% loan-to-value.

An annual tax local governments charge based on your home's assessed value, usually collected monthly through your escrow account.

A lender's guarantee to hold a specific interest rate for a set period of time while your loan is processed, protecting you from rate increases during that window.

Replacing your current mortgage with a new one, often to get a lower interest rate, change your loan term, or tap into home equity (a cash-out refinance).

The legal right of ownership to a property.

A one-time-purchase insurance policy protecting you (owner's policy) or your lender (lender's policy) against problems with the property's title, like undisclosed liens or ownership disputes.

A review of public records to confirm the seller has a clear legal right to sell the property, and to uncover any liens, claims, or issues that need resolving before closing.

The process where a lender verifies your financial information, assesses risk, and makes the final decision on whether — and how — to approve your loan.

A one-time fee on VA loans (in place of monthly mortgage insurance) that helps sustain the VA loan program. Often financed into the loan, and waived for veterans with a service-connected disability.