Glossary of Terms

Understanding mortgage terminology can help you make smarter financial decisions and feel more confident throughout the home loan process. This glossary defines common terms you’ll encounter when applying for a mortgage, refinancing, or buying a home.

A

Amortization
The process of paying off a mortgage through regular monthly payments that cover both principal and interest over the life of the loan.

Annual Percentage Rate (APR)
The total cost of borrowing, including interest and fees, expressed as a yearly rate.

B

Balance
The outstanding amount you still owe on your mortgage.

Borrower
The person(s) applying for and responsible for repaying a home loan.

C

Closing Costs
Fees and expenses paid at the closing of a real estate transaction, including lender fees, title insurance, and taxes.

Credit Score
A numerical rating that represents your creditworthiness based on your credit history.

Cash‑Out Refinance
A refinance loan that allows you to take out equity from your home as cash at closing.

D

Down Payment
The amount you pay upfront toward the purchase of a home. Typically expressed as a percentage of the home’s purchase price.

Debt‑to‑Income Ratio (DTI)
A measure lenders use to evaluate your ability to repay a mortgage, calculated as monthly debts ÷ gross monthly income.

E

Escrow
An account held by a third party (often your lender) to collect property taxes and homeowners insurance as part of your monthly mortgage payment.

Equity
The portion of your home that you own outright; calculated as the property’s market value minus your mortgage balance.

F

Fixed‑Rate Mortgage
A home loan with an interest rate that stays the same for the life of the loan.

Foreclosure
A legal process by which a lender takes ownership of a property when the borrower fails to make mortgage payments.

I

Interest Rate
The percentage charged by the lender for borrowing money. This affects your monthly payment and total cost of the loan.

Inspection vs. Appraisal

• Inspection: A professional check of the home’s condition.

• Appraisal: A valuation of the home to determine market value for the loan.

L

Loan Estimate
A standardized disclosure that shows the estimated interest rate, monthly payment, and closing costs you’ll pay.

Loan‑to‑Value Ratio (LTV)
The percentage of the home’s value that is financed with a mortgage. A higher LTV may require mortgage insurance.

M

Mortgage Insurance (PMI / MIP)
Insurance required when the down payment is less than 20% on a conventional loan (PMI) or required by certain government loans (MIP for FHA).

P

Pre‑Approval
A preliminary evaluation of your creditworthiness that estimates how much a lender may be willing to lend you.

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

R

Refinance
Replacing your current mortgage with a new loan to change your interest rate, loan term, or access equity.

Rate Lock
A lender’s guarantee that your interest rate won’t change for a specified period while your loan is processed.

S

Servicer
The company that manages your mortgage payments after closing.

Settlement
Another term for closing — the final step where ownership transfers and the loan becomes effective.

T

Title Insurance
Protection against defects in the property title, such as liens or ownership disputes.

Term
The length of time you have to repay your mortgage (e.g., 15‑year or 30‑year).

U

Underwriting
The lender’s process of reviewing your financial and credit information to decide whether to approve your loan.

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We continually update this page with additional terms to help you become a more confident and informed homebuyer.

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