Glossary

Mortgage terms in plain English. If you've heard a word you don't recognize, start here.

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Amortization: The schedule by which a loan is paid down over time. Early payments are mostly interest; later payments are mostly principal.
Annual Percentage Rate (APR): The all-in annual cost of a loan, including interest plus most fees, expressed as a single percentage. Always compare APR, not just the rate.

Cash-out refinance: A new mortgage that replaces your current loan with a larger one, with the difference paid to you in cash. You're trading equity for liquidity.
Closing costs: The bundle of fees due at closing, lender fees, title, escrow, transfer taxes, prepaid items. Typically 2–5% of the home price.
Closing Disclosure (CD): The federally required document showing the final terms of your loan and exact closing costs. Delivered at least 3 business days before signing.
Conforming loan: A mortgage that meets Fannie Mae / Freddie Mac size and credit limits. Anything above the conforming limit is a jumbo loan.

Debt-to-income ratio (DTI): Your total monthly debt payments divided by your gross monthly income. Most lenders cap qualifying DTI between 36% and 43%.
Discount points: Fees paid up front to lower your interest rate. One point = 1% of the loan amount. Worth it only if you'll keep the loan long enough to recoup the cost.
Down payment: The portion of the home price you pay in cash up front. The rest is financed by your mortgage.

Earnest money: A deposit paid by the buyer to show good faith when an offer is accepted. Typically 1–3% of the price; held in escrow and applied to closing costs or down payment.
Escrow: A neutral third-party account that holds money during a transaction. Also refers to the monthly portion of your payment set aside for taxes and insurance.

FHA loan: A government-backed mortgage with looser credit requirements and as little as 3.5% down. Comes with mortgage insurance that often lasts the life of the loan.

HELOC: Home Equity Line of Credit. A revolving credit line secured by your home equity, usually variable-rate, with a draw period followed by a repayment period.
Home equity loan: A fixed-rate, fixed-term lump-sum loan secured by your home's equity. Separate from your first mortgage.

Jumbo loan: A mortgage larger than the conforming limit (around $766k in most U.S. counties, higher in expensive ones). Typically requires stronger credit and a larger down payment.

Loan Estimate (LE): Federally required document delivered within 3 days of application that summarizes the loan's terms and estimated costs. Use it to compare offers.
Loan-to-value ratio (LTV): Your loan balance divided by the property value. 80% LTV (20% equity) is the typical threshold to drop PMI on conventional loans.
Lock period: The window during which a quoted interest rate is guaranteed. Common lengths: 30, 45, 60 days. Longer locks usually carry a slightly higher rate.

Mortgage broker: A licensed professional who shops your loan across multiple wholesale lenders. Usually paid by the lender, not the borrower.

PITI: Principal, Interest, Taxes, Insurance, the four components of most monthly housing payments. Add HOA and PMI for the full picture.
PMI: Private Mortgage Insurance. Required on conventional loans with less than 20% down. Drops automatically once your LTV reaches 78–80%.
Points: See Discount points.
Pre-approval: A lender's review of your credit, income, and assets that produces a conditional commitment to lend up to a certain amount. Stronger than a pre-qualification.
Pre-qualification: An informal estimate of how much you might borrow based on stated information. Not verified.

Recast: Reamortizing your existing loan after a large principal payment, lowering your monthly payment without changing the rate or term.
Refinance: Replacing your current mortgage with a new one, typically to lower the rate, change the term, or pull cash out.

Title insurance: Insurance that protects against ownership disputes from before your purchase. Lender's policy is mandatory; owner's policy is optional but recommended.

VA loan: A government-backed mortgage available to qualifying veterans and active-duty service members. Typically requires no down payment and no mortgage insurance.

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