Mortgage Glossary: 100+ Terms Defined
Plain-language definitions for every mortgage term you will encounter — from APR to zero-closing-cost loans. Bookmark this page as your go-to reference.
Navigate by letter or scroll through all terms. Each definition is written in plain language with links to relevant guides and calculators.
A
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a market index. Typically starts with a lower fixed rate for 3-10 years, then adjusts annually. See our ARM rates page.
Amortization
The process of paying off a loan over time through regular payments that cover both principal and interest. Use our amortization calculator to see your schedule.
Annual Percentage Rate (APR)
The total yearly cost of a mortgage expressed as a percentage, including interest rate plus fees and points. APR is always higher than the base interest rate.
Appraisal
A professional assessment of a property's market value, required by the lender before approving a mortgage. Typically costs $400-$700.
Assumable Mortgage
A mortgage that can be transferred from the seller to the buyer, keeping the original loan terms. FHA and VA loans are assumable.
B
Basis Point
One-hundredth of a percentage point (0.01%). Used to describe rate changes — 25 basis points = 0.25%.
Borrower
The person who receives the mortgage loan and is responsible for repaying it.
Bridge Loan
A short-term loan used to bridge the gap between buying a new home and selling the current one.
Buydown
A financing technique where the borrower pays extra upfront to lower the interest rate for a set period. Common types: 2-1 buydown, 3-2-1 buydown.
C
Cash-Out Refinance
Refinancing for more than you owe and taking the difference as cash. See our cash-out refinance guide.
Closing
The final step in a real estate transaction where documents are signed, funds are transferred, and ownership changes hands.
Closing Costs
Fees paid at closing, typically 2-5% of the loan amount. Includes origination fees, title insurance, appraisal, and more. See our closing costs guide.
Closing Disclosure
A 5-page form provided at least 3 business days before closing that details final loan terms, projected payments, and closing costs.
Conforming Loan
A mortgage that meets Fannie Mae and Freddie Mac guidelines, including loan limits ($766,550 in most areas for 2024).
Conventional Loan
A mortgage not insured or guaranteed by the government. Requires higher credit scores but offers more flexibility. See conventional loans.
Credit Score
A numerical rating (300-850) that reflects your creditworthiness. Higher scores get better mortgage rates. See our credit score guide.
D
Debt-to-Income Ratio (DTI)
Your total monthly debt payments divided by gross monthly income. Most lenders want DTI below 43%. Use our DTI calculator.
Deed of Trust
A legal document that secures the mortgage, giving the lender a lien on the property until the loan is paid off.
Default
Failure to make mortgage payments as agreed, which can lead to foreclosure.
Discount Points
Upfront fees paid to lower your interest rate. One point = 1% of loan amount. See our mortgage points guide.
Down Payment
The upfront cash you pay toward the purchase price. Ranges from 0% (VA/USDA) to 20%+ (conventional without PMI). See our down payment guide.
E
Earnest Money
A deposit (typically 1-3% of the price) showing the buyer's good faith intention to purchase. Held in escrow and applied to closing costs or down payment.
Equity
The difference between your home's current market value and what you owe on the mortgage. Equity builds as you pay down the loan and as the home appreciates.
Escrow
An account held by a third party to collect and pay property taxes and homeowners insurance on behalf of the borrower. Also refers to the period between contract and closing.
F
Fannie Mae (FNMA)
Federal National Mortgage Association — a government-sponsored enterprise that buys mortgages from lenders and sets conforming loan guidelines.
FHA Loan
A mortgage insured by the Federal Housing Administration. Allows 3.5% down payment with credit scores as low as 580. See FHA loans.
FICO Score
The most widely used credit scoring model for mortgages. Ranges from 300-850. Named after Fair Isaac Corporation.
Fixed-Rate Mortgage
A mortgage with an interest rate that stays the same for the entire loan term. Most common: 30-year and 15-year fixed. See 30-year rates.
Float Down
A rate lock option that allows you to lower your locked rate if market rates drop before closing.
Forbearance
A temporary pause or reduction in mortgage payments, granted by the lender during financial hardship.
Foreclosure
The legal process where a lender seizes and sells a property after the borrower defaults on the mortgage.
Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corporation — works alongside Fannie Mae to buy mortgages from lenders and set guidelines.
G
Good Faith Estimate
An older term (replaced by Loan Estimate in 2015) for a document showing estimated loan costs.
Government Loan
A mortgage insured or guaranteed by a federal agency — FHA, VA, or USDA.
Gross Income
Your total income before taxes and deductions. Used to calculate DTI ratio.
H
HELOC
Home Equity Line of Credit — a revolving credit line secured by your home. See our home equity guide.
Home Equity Loan
A second mortgage that provides a lump sum at a fixed rate, secured by your home equity. See our home equity guide.
Home Inspection
A professional examination of a property's condition before purchase. Not required by lenders but strongly recommended.
Homeowners Insurance
Insurance that covers damage to your home and personal liability. Required by all mortgage lenders.
HUD
U.S. Department of Housing and Urban Development — oversees FHA and fair housing laws.
I
Index
A benchmark interest rate (like SOFR or Treasury yields) used to calculate adjustable-rate mortgage rates.
Interest Rate
The percentage charged by the lender for borrowing money, expressed as an annual rate.
Interest-Only Mortgage
A loan where you pay only interest for a set period (usually 5-10 years), then begin paying principal. Results in no equity building during interest-only period.
J
Jumbo Loan
A mortgage that exceeds conforming loan limits set by FHFA. Requires higher credit scores and larger down payments. See jumbo loans.
L
Lien
A legal claim on a property that secures a debt. Your mortgage creates a lien on your home.
Loan Estimate
A 3-page form lenders must provide within 3 business days of your application, showing estimated terms, rates, and closing costs.
Loan Officer
A mortgage professional who helps you apply for and obtain a mortgage. Also called a loan originator.
Loan-to-Value Ratio (LTV)
The mortgage amount divided by the appraised value. LTV of 80% means you are borrowing 80% and putting 20% down. Higher LTV = higher risk = higher rates.
Lock Period
The time frame (typically 30-60 days) during which your quoted interest rate is guaranteed. Longer locks may cost more.
M
Margin
The fixed percentage added to the index rate to determine your ARM rate. If the index is 4% and margin is 2%, your rate is 6%.
MIP
Mortgage Insurance Premium — the insurance required on FHA loans. Includes upfront (1.75%) and annual (0.55% typical) premiums.
Mortgage Broker
An intermediary who shops multiple lenders on your behalf. May offer more options than a single lender.
Mortgage Insurance
Insurance that protects the lender if you default. Required on conventional loans with less than 20% down (PMI) and all FHA loans (MIP). See our PMI guide.
N
Non-QM Loan
A non-qualified mortgage that does not meet standard Consumer Financial Protection Bureau guidelines. Used for self-employed, foreign nationals, or unique income situations.
Note Rate
The interest rate stated on your mortgage note — the actual rate you pay, as opposed to the APR.
O
Origination Fee
A fee charged by the lender for processing your loan application. Typically 0.5-1% of the loan amount.
Owner-Occupied
A property where the borrower lives as their primary residence. Gets the best mortgage rates versus investment or second-home properties.
P
PITI
Principal, Interest, Taxes, and Insurance — the four components of a typical monthly mortgage payment.
PMI
Private Mortgage Insurance — required on conventional loans with less than 20% down. Costs 0.3-1.5% of the loan annually. See our PMI guide.
Points
See Discount Points. One point = 1% of the loan amount, typically reduces rate by ~0.25%. See our mortgage points guide.
Pre-Approval
A lender's written commitment to lend you a specific amount based on verified income, credit, and assets. Stronger than pre-qualification.
Pre-Qualification
An informal estimate of how much you might borrow, based on self-reported financial information. Less rigorous than pre-approval.
Prepayment Penalty
A fee charged for paying off a mortgage early. Rare on modern conforming loans but common on some non-QM products.
Principal
The amount of money you borrowed — your loan balance, not including interest. Each payment reduces your principal.
R
Rate Lock
An agreement with the lender to hold a specific interest rate for a set period while your loan is processed.
Refinance
Replacing your current mortgage with a new one, typically for a lower rate, different term, or to access equity. See our refinancing guide.
Right of Rescission
A 3-business-day period after closing a refinance during which you can cancel the transaction.
S
Second Mortgage
A loan taken out against a property that already has a mortgage. Home equity loans and HELOCs are second mortgages.
Seller Concessions
Closing costs paid by the seller on behalf of the buyer. Limited to 2-6% of the purchase price depending on loan type and down payment.
Servicer
The company that collects your mortgage payments, manages your escrow account, and handles customer service. May differ from your original lender.
Short Sale
Selling a home for less than the mortgage balance with the lender's approval, used to avoid foreclosure.
SOFR
Secured Overnight Financing Rate — the benchmark index used for most new adjustable-rate mortgages, replacing LIBOR.
Streamline Refinance
A simplified refinance program for FHA (FHA Streamline) and VA (IRRRL) loans, requiring less documentation and often no appraisal.
T
Title
Legal ownership of a property. A title search verifies there are no outstanding claims or liens before purchase.
Title Insurance
Insurance that protects against claims on the property's title. Required by lenders; optional for owners.
TRID
TILA-RESPA Integrated Disclosure — federal rules governing the Loan Estimate and Closing Disclosure forms.
U
Underwriting
The process where a lender evaluates your loan application, verifying income, credit, assets, and property value to determine approval.
Underwater Mortgage
When you owe more on your mortgage than the home is currently worth. Also called being 'upside down.'
USDA Loan
A zero-down-payment mortgage for eligible rural and suburban properties, backed by the U.S. Department of Agriculture. See USDA loans.
V
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs. Offers zero down payment and no PMI for eligible veterans and service members. See VA loans.
VA Funding Fee
A one-time fee (1.25-3.3%) charged on VA loans in lieu of mortgage insurance. Can be rolled into the loan balance.
Explore More Resources
Official Government Resources
CFPB — Owning a Home
Consumer Financial Protection Bureau guide.
HUD — Buying a Home
Housing & Urban Development resources.
VA — Home Loans
VA home loan eligibility and info.
Freddie Mac — Rate Survey
Weekly national average rates.
FHFA — Loan Limits
Conforming loan limits by county.
IRS — Mortgage Interest Deduction
Deducting mortgage interest.