Mortgage Glossary

Amortization

The process of paying off a loan over time through regular payments, with each payment covering both interest and a portion of the principal.

Annual Percentage Rate (APR)

The yearly cost of your loan expressed as a percentage, including the interest rate plus certain fees and costs - giving a fuller picture than the interest rate alone.

Appraisal

A professional estimate of a home's market value, typically required by a lender before approving a loan.

Closing Costs

Fees and expenses paid at closing beyond the down payment, such as loan origination fees, title insurance, appraisal fees, and recording fees.

Debt-to-Income Ratio (DTI)

A percentage comparing your total monthly debt payments to your gross monthly income, used by lenders to gauge how much you can afford to borrow.

Down Payment

The portion of a home's purchase price you pay upfront in cash, rather than financing through the loan.

Earnest Money

A deposit made to a seller showing a buyer’s good-faith intent to purchase a home, typically credited toward closing costs or the down payment.

Equity

The difference between your home's current market value and the amount you still owe on your mortgage.

Escrow

An account, typically managed by your lender, used to hold funds for property taxes and homeowners insurance, which are paid on your behalf as they come due.

Fixed-Rate Mortgage

A mortgage where the interest rate stays the same for the entire loan term, resulting in a consistent principal and interest payment.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that starts fixed for an initial period, then adjusts periodically based on market conditions.

Loan-to-Value Ratio (LTV)

The percentage of a home's value that is financed by the loan, calculated by dividing the loan amount by the home's appraised value or purchase price.

Mortgage Insurance (PMI/MIP)

Insurance that protects the lender if a borrower defaults, typically required when the down payment is less than 20% of the home's value.

Origination Fee

A fee charged by a lender for processing a new loan application, typically calculated as a percentage of the loan amount.

Points (Discount Points)

Optional upfront fees paid at closing to lower your interest rate for the life of the loan - one point typically costs 1% of the loan amount.

Pre-Approval

A lender's conditional commitment to lend you a specific loan amount, based on a review of your credit, income, and financial documentation.

Pre-Qualification

An informal, preliminary estimate of how much you may be able to borrow, based on self-reported financial information rather than verified documentation.

Principal

The original amount borrowed, not including interest - or, over time, the remaining loan balance still owed.

Rate Lock

A lender’s agreement 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.

Underwriting

The process a lender uses to evaluate the risk of a loan by verifying your income, assets, credit, and the property itself before final approval.