Mortgage Glossary
Comprehensive definitions of mortgage and real estate terms to help you navigate the home financing process with confidence. Search or browse alphabetically.
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A
Adjustable-Rate Mortgage (ARM)
A mortgage loan with an interest rate that can change periodically during the life of the loan. The rate is typically tied to a financial index and adjusts at specified intervals.
Amortization
The process of paying off a debt over time through regular monthly payments. Each payment covers both principal and interest, with early payments going mostly toward interest.
Annual Percentage Rate (APR)
The yearly cost of credit expressed as a percentage rate. APR includes the interest rate plus additional fees and costs, providing a more comprehensive measure of loan cost than interest rate alone.
Appraisal
A professional estimate of a property's value conducted by a licensed appraiser. Lenders require appraisals to ensure the loan amount doesn't exceed the property's value.
Asset
Anything of value that you own, including cash, investments, real estate, vehicles, and personal property. Lenders consider assets when evaluating loan applications.
Assumption
The process of taking over the existing mortgage of a home seller. The buyer assumes responsibility for the seller's mortgage terms and payments.
B
Balloon Mortgage
A mortgage with low monthly payments for a set period, followed by one large final payment (the "balloon" payment) that pays off the remaining balance.
Basis Point
One-hundredth of a percentage point (0.01%). Used to describe small changes in interest rates. For example, if rates increase from 4.00% to 4.25%, that's an increase of 25 basis points.
Broker
A licensed professional who acts as an intermediary between borrowers and lenders. Mortgage brokers shop around to find loan products that meet borrowers' needs.
C
Cap
The limit on how much an adjustable-rate mortgage's interest rate can increase or decrease over a specific period or during the life of the loan.
Cash-Out Amount
The amount of cash you receive when doing a cash-out refinance. This is the difference between your new loan amount and what you owe on your current mortgage, minus closing costs.
Closing
The final step in the home buying process where ownership of the property is transferred from seller to buyer. Also called "settlement."
Closing Costs
Fees and expenses paid at closing, separate from the down payment. These may include loan origination fees, title insurance, attorney fees, and other charges.
Closing Costs
Fees and expenses paid at closing, separate from the down payment. These may include loan origination fees, title insurance, attorney fees, and other charges.
Collateral
Property or assets that secure a loan. In mortgage lending, the home itself serves as collateral for the loan.
Conforming Loan
A mortgage that meets the standards set by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, including maximum loan amounts.
Conventional Loan
A mortgage that is not insured or guaranteed by a government agency. These loans typically require higher credit scores and down payments than government-backed loans.
Credit Report
A detailed record of your credit history, including accounts, payment history, outstanding debts, and public records. Lenders use this to assess creditworthiness.
Credit Score
A numerical representation of your creditworthiness, typically ranging from 300 to 850. Higher scores indicate lower credit risk and may qualify for better loan terms.
Current Interest Rate
The interest rate on your existing mortgage loan. This rate determines how much interest you pay monthly on your outstanding balance.
Current Remaining Term
The number of years left on your existing mortgage loan. For example, if you have a 30-year mortgage and have been paying for 5 years, you have 25 years remaining.
D
Deed
A legal document that transfers ownership of real property from one party to another. The deed must be properly executed and recorded.
Default
Failure to make mortgage payments as agreed in the loan contract. Default can lead to foreclosure proceedings.
Down Payment
The portion of a home's purchase price that you pay upfront in cash. The remainder is financed through a mortgage loan.
E
Earnest Money
A deposit made by the buyer to show good faith when making an offer on a home. This money is typically held in escrow and applied toward the down payment at closing.
Equity
The difference between your home's current market value and the amount you owe on your mortgage. Equity builds as you make payments and/or the property appreciates.
Estimated Annual Interest Rate
The projected interest rate you expect to pay on a new mortgage loan. This is an estimate based on current market conditions and may change before closing.
Expected Annual Investment Return
The annual rate of return you anticipate earning on your investments. This is typically expressed as a percentage and helps compare investment growth against mortgage costs.
F
FHA Loan
A mortgage insured by the Federal Housing Administration. These loans typically require lower down payments and credit scores than conventional loans.
Fixed-Rate Mortgage
A mortgage with an interest rate that remains constant throughout the entire term of the loan, providing predictable monthly payments.
Foreclosure
The legal process by which a lender takes possession of a property when the borrower fails to make mortgage payments as agreed.
G
Good Faith Estimate (GFE)
A standardized form that lenders provide within three days of receiving a loan application, estimating the costs associated with the loan.
Gross Monthly Income
Your total monthly income before taxes and deductions are taken out. This includes salary, wages, bonuses, and other sources of income, and is used by lenders to calculate your debt-to-income ratio.
H
Home Inspection
A professional examination of a home's condition, typically conducted before purchase to identify potential problems or needed repairs.
I
Index
A benchmark interest rate that serves as the basis for adjustable-rate mortgages. Common indexes include the prime rate and various treasury securities.
Interest Rate
The percentage of the loan amount charged annually for borrowing money. This rate determines the cost of the loan beyond the principal amount.
J
Jumbo Loan
A mortgage that exceeds the conforming loan limits set by government-sponsored enterprises. Also called a non-conforming loan.
L
Lien
A legal claim against a property that must be paid when the property is sold. Mortgages, tax obligations, and mechanic's liens are common examples.
Loan-to-Value Ratio (LTV)
The relationship between the loan amount and the property's value, expressed as a percentage. A $200,000 loan on a $250,000 home has an 80% LTV.
M
Margin
The number of percentage points added to an index rate to determine the interest rate for an adjustable-rate mortgage.
Mortgage Insurance
Insurance that protects the lender if the borrower defaults on the loan. Required on conventional loans with less than 20% down payment and all FHA loans.
O
Origination Fee
A fee charged by the lender to cover the costs of processing the loan application. Typically expressed as a percentage of the loan amount.
Other Monthly Debt Payments
Monthly payments for debts other than your mortgage, such as credit cards, car loans, student loans, and personal loans. Lenders include these in your debt-to-income ratio calculation.
Outstanding Balance
The remaining amount you still owe on your mortgage loan. This decreases over time as you make principal payments.
P
P&I Payment
Principal and Interest payment - the portion of your monthly mortgage payment that goes toward paying down the loan principal and interest. This excludes taxes and insurance.
Points
Prepaid interest charges, where one point equals 1% of the loan amount. Points can be used to buy down the interest rate.
Pre-Approval
A lender's conditional commitment to provide a loan up to a specific amount, based on a thorough review of the borrower's financial situation.
Pre-Qualification
An informal estimate of how much you might be able to borrow, based on basic financial information you provide to a lender.
Preferred Loan Term
The length of time you want to take to repay your mortgage loan, typically 15, 20, or 30 years. Shorter terms have higher monthly payments but lower total interest costs.
R
Refinancing
The process of obtaining a new mortgage to replace an existing one, often to secure better terms or access home equity.
Remaining Term
The number of years left on your mortgage loan. For example, if you have a 30-year mortgage and have been paying for 5 years, you have 25 years remaining.
Risk Profile
Your tolerance for investment risk, typically categorized as conservative (preferring stability), moderate (balanced approach), or aggressive (willing to accept volatility for higher potential returns).
S
Savings Account Balance
The amount of money you currently have saved in cash or liquid accounts. This represents funds available for emergencies, down payments, or investment opportunities.
T
Target Total Monthly Payment (PITI)
The total monthly housing payment you want to afford, including Principal, Interest, Taxes, and Insurance (PITI). This helps determine how much house you can afford based on your budget.
Total Annual Property Costs
The total yearly cost of owning and maintaining a property, including property taxes, homeowners insurance, maintenance, and other expenses. This helps determine your true cost of homeownership.
Total Investment Value
The total current value of all your investment holdings, including stocks, bonds, mutual funds, retirement accounts, and other investment vehicles.
V
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs, available to eligible veterans, active military, and surviving spouses.
Variable Rate
An interest rate that can change over time based on changes in an underlying interest rate index.
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Important Disclaimer
Not Financial Advice: This information is for educational purposes only. Consult qualified professionals before making financial decisions. Results are estimates and may vary based on market conditions and individual circumstances.