Mortgage Glossary
24 terms explained the way a person would explain them, each linked to the calculator where the term actually changes your numbers.
- Amortization
- The schedule that splits each mortgage payment between interest and principal until the balance reaches zero.
- APR (Annual Percentage Rate)
- A rate that expresses the interest rate plus certain loan costs, intended to make offers easier to compare.
- Closing costs
- Lender, title, government and prepaid charges that are due when your loan closes.
- Conforming loan limit
- The maximum loan amount Fannie Mae and Freddie Mac will purchase, set annually by FHFA.
- Conventional loan
- A mortgage not insured or guaranteed by a government agency, usually following Fannie Mae or Freddie Mac guidelines.
- Debt-to-income ratio (DTI)
- Your monthly debt payments divided by your gross monthly income, used by lenders to assess capacity.
- Down payment
- The portion of the purchase price you pay from your own funds rather than borrowing.
- Escrow account
- An account your servicer uses to collect and pay property taxes and homeowners insurance.
- FHA loan
- A mortgage insured by the Federal Housing Administration, often used for lower down payments or more flexible credit requirements.
- Home equity
- The difference between your home's value and what you owe on it.
- Interest rate
- The annual rate used to calculate the interest portion of your mortgage payment.
- Jumbo loan
- A mortgage larger than the applicable conforming loan limit for the area.
- Loan Estimate
- A standardized three-page disclosure showing your estimated rate, payment and closing costs after you apply.
- Loan-to-value (LTV)
- Your loan amount divided by the home's value, expressed as a percentage.
- MIP (Mortgage Insurance Premium)
- FHA's mortgage insurance, charged as a 1.75% upfront premium plus an annual premium collected monthly.
- PMI (Private Mortgage Insurance)
- Insurance required on conventional loans above 80% loan-to-value, protecting the lender if the loan defaults.
- Points (discount points)
- An upfront charge equal to 1% of the loan amount per point, paid to reduce your interest rate.
- Pre-approval
- A lender's review of your documented income, assets and credit supporting a specific loan amount.
- Principal
- The amount you owe on the loan, separate from interest.
- Property tax
- A local tax on real estate, usually collected monthly through escrow with your mortgage payment.
- Rate lock
- A lender's commitment to hold a specific interest rate for a set period while your loan is processed.
- Refinance
- Replacing your existing mortgage with a new one, usually to change the rate, the term or to take cash out.
- Seller credit
- Money the seller contributes toward the buyer's closing costs or, in some cases, a rate buydown.
- Underwriting
- The lender's verification of your credit, income, assets and the property before final loan approval.
Educational only: The calculators and information on this website are for educational and illustrative purposes only. Results are estimates based on the information and assumptions entered and are not a loan offer, commitment to lend, financial advice or guarantee of eligibility, rates, costs or savings. Actual loan terms, rates, fees, mortgage insurance and qualification requirements vary by borrower, property, lender and loan program. Speak with a licensed mortgage professional for personalized information.