Mortgage glossary

A mortgage with an interest rate that can change under the loan agreement. Many ARMs have an initial fixed-rate period (e.g., 5, 7, or 10 years), followed by adjustments at specified intervals, such as every six months or annually. The index, margin and rate caps determine how the rate changes.

The process of paying off a loan through regular payments over time. Each payment covers both principal and interest, with early payments weighted toward interest and later payments toward principal.

A fee some lenders charge to begin processing your mortgage application.

A professional assessment of a property's market value conducted by a licensed appraiser. Lenders require appraisals to ensure the property is worth the loan amount.

A yearly measure of borrowing cost that includes the interest rate and certain finance charges, such as applicable points and mortgage insurance. It does not include every closing cost. Compare APRs alongside the loan terms and costs.

A mortgage a qualified buyer can take over from the seller, keeping the original rate and terms — common with FHA and VA loans.

A loan with smaller payments for a set term followed by one large 'balloon' payment of the remaining balance.

A Non-QM loan that uses 12–24 months of bank statements instead of tax returns to document income, commonly used by self-employed borrowers.

One one-hundredth of a percentage point. Rate movements are commonly quoted in basis points rather than decimals.

Short-term financing that helps you purchase a new home before selling your current one, 'bridging' the gap between the two transactions.

Short-term financing that helps you purchase a new home before selling your current one, 'bridging' the gap between the two transactions.

Discount points may reduce the note rate permanently. A temporary buydown instead uses a subsidy to reduce the borrower's early payments; the note rate and contractual payment obligation remain in place. Review the subsidy terms and payments after it ends.

Liquid assets remaining after closing; some loan programs require several months' worth of mortgage payments held in reserve.

Replacing your mortgage with a larger loan and taking the difference as cash, drawing on your home equity.

The milestone confirming underwriting is fully satisfied and your loan is ready to proceed to closing.

The final step of a home purchase or refinance where documents are signed, funds are disbursed, and ownership transfers.

Fees and expenses paid at the closing of a real estate transaction. These typically include origination fees, title insurance, appraisal fees, attorney fees, and prepaid items like taxes and insurance.

A five-page form detailing your final loan terms, monthly payment, and closing costs, which lenders must provide at least three business days before closing.

An underwriting approval that's subject to you satisfying specific remaining conditions, such as documents or verifications, before final approval.

A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, including loan limits. For 2026 the FHFA conforming limit is $832,750 for a one-unit home in most counties, with higher limits in high-cost areas up to a $1,249,125 ceiling.

A short-term loan that funds building a home in stages (draws), often converting to a permanent mortgage once construction is complete.

A condition in a purchase contract — such as financing, appraisal, or inspection — that must be met or the buyer may withdraw.

A mortgage not insured or guaranteed by a government agency. Down payment, credit and documentation requirements vary by program and lender; some conventional programs have low down payment options.

The percentage of qualifying gross monthly income used for monthly debt payments. Acceptable ratios depend on the loan program, lender and underwriting findings; DTI alone does not determine approval.

The legal document that transfers ownership of real property from the seller to the buyer.

Failure to meet the mortgage's terms — most commonly by missing payments — which can ultimately lead to foreclosure.

Upfront fees paid to the lender at closing to reduce the interest rate on your mortgage. One point equals 1% of the loan amount. Paying points can lower your monthly payment and total interest paid.

The portion of the home's purchase price you pay upfront. The amount required varies by loan program, by lender and by your financial situation.

An investment-property loan evaluated using rental income relative to debt payments. Rental coverage is one requirement; credit, equity, reserves, property and other lender requirements also apply.

A good-faith deposit a buyer makes to show serious intent; it's typically credited toward your down payment or closing costs at closing.

The difference between your home's current market value and the amount you owe on your mortgage. Equity builds as you pay down your loan and as your property value increases.

An account held by a third party where funds are deposited for future payments. Lenders often collect monthly escrow payments for property taxes and homeowner's insurance as part of your mortgage payment.

A mortgage insured by the Federal Housing Administration and funded by an approved lender. FHA mortgage insurance, credit, property and occupancy requirements apply. Compare down payment and total costs with conventional options.

A mortgage whose interest rate stays fixed for the loan term. For a fully amortizing loan, scheduled principal and interest stay the same; taxes, insurance and the total payment can change.

Choosing not to lock your rate yet, leaving it subject to market movement until you decide to lock.

An option on some rate locks that lets you take a lower rate if market rates fall before closing.

Insurance that covers damage to your property from flooding. Required for homes in designated flood zones (FEMA Special Flood Hazard Areas) if you have a federally-backed mortgage.

A temporary pause or reduction of mortgage payments granted by your servicer during hardship; the paused amount is repaid later.

Coverage a lender buys on your behalf — at your expense, and usually more costly — if your required homeowner's insurance lapses.

The legal process by which a lender repossesses and sells a home after the borrower defaults on the loan.

Money gifted (often by family) toward your down payment or closing costs, documented with a gift letter confirming it doesn't need to be repaid.

Another name for the homeowner's coverage that protects against damage such as fire and storms; lenders require it before closing.

A revolving line of credit secured by your home equity that you can draw from as needed, typically with a variable rate during a set draw period.

Recurring fees paid to a homeowners association for shared amenities and maintenance; lenders factor them into your qualifying ratios.

A lump-sum second mortgage borrowed against your home equity, usually at a fixed rate and repaid in regular installments.

A professional evaluation of a home's condition and systems, ordered by the buyer — separate from the lender's appraisal — to identify needed repairs.

Insurance that protects your home and belongings against damage, theft, and liability. Lenders require proof of homeowner's insurance before closing on a mortgage.

The benchmark rate (such as SOFR) an adjustable-rate mortgage is tied to; when the index moves, your rate can adjust.

The percentage charged by a lender for borrowing money, expressed as an annual rate. Unlike APR, the interest rate doesn't include other loan costs and fees.

A loan that lets you pay only interest for an initial period, after which payments increase to include principal as well.

A mortgage that exceeds conforming loan limits set by Fannie Mae and Freddie Mac. Jumbo loans typically require larger down payments, higher credit scores, and more documentation.

Money provided by the lender to offset closing costs in exchange for a higher interest rate. This can help reduce upfront costs but increases your monthly payment and total interest paid.

A legal claim against a property for an unpaid debt; liens generally must be cleared before or at closing.

A standardized form that lenders must provide within three business days of receiving your mortgage application. It details the estimated interest rate, monthly payment, and closing costs.

The company that manages your mortgage after closing — collecting payments, managing escrow, and sending statements.

The ratio of your loan amount to the property's appraised value, expressed as a percentage. An LTV above 80% typically requires private mortgage insurance (PMI) on conventional loans.

The period covered by a written rate-lock agreement. Pricing, expiration, extensions and any changes to application details are governed by the agreement and lender requirements.

A fixed percentage the lender adds to the index to set your adjustable rate. Index plus margin equals your fully indexed rate.

Insurance required on FHA loans that protects the lender if you default. MIP includes an upfront premium, which can usually be financed, and an annual premium paid monthly. FHA sets both.

A licensed professional who takes your application and helps you choose a loan; each is identified by a unique NMLS number.

A mortgage that doesn't meet the Consumer Financial Protection Bureau's qualified mortgage standards. Non-QM loans may use alternative documentation like bank statements for self-employed borrowers.

The actual interest rate stated on your promissory note, used to calculate your monthly principal-and-interest payment.

A fee charged by the lender for processing and underwriting a mortgage. It is expressed as a percentage of the loan amount and is included in closing costs.

Optional title insurance that protects the buyer's ownership interest, separate from the lender's required title policy.

An interest rate at which no discount points or lender credits are involved. Choosing a rate above par earns lender credits; choosing below par requires paying discount points.

A second loan taken alongside the first to avoid PMI or to stay under the jumbo threshold. The structure is often described by the split between the first mortgage, the second and the down payment.

Principal, Interest, Taxes, and Insurance—the four components of a typical monthly mortgage payment. Lenders use PITI to calculate your debt-to-income ratio.

A loan the lender keeps 'in portfolio' rather than selling to investors, which can allow more flexible qualifying guidelines.

A lender's conditional decision, made after its underwriter reviews your application and credit, that you may qualify for a loan up to a stated amount. It comes before you are under contract on a home, so the property address can be TBD (to be determined). With a mortgage broker, the lender issues the pre-approval; the broker does not make the credit decision. It is not a final approval or a commitment to lend: verification, an appraisal and the lender's final approval still apply. Once you are under contract, you apply with the property address.

A preliminary estimate of how much you may be able to borrow based on information reviewed by a lender or mortgage broker. The review varies by provider. It is not a loan commitment or a guarantee of approval.

Interest owed from your closing date through the end of that month, collected at closing (also called per-diem interest).

Upfront amounts collected at closing to fund your escrow account and cover items like prepaid interest, property taxes, and homeowner's insurance.

A fee charged by some lenders if you pay off your mortgage early. Many loans, especially government-backed ones, don't have prepayment penalties.

A benchmark interest rate banks use to price many consumer loans; it generally moves with the Federal Reserve's federal funds rate.

The original amount borrowed on a mortgage, not including interest. As you make payments, the principal balance decreases.

Insurance required on conventional loans when the down payment falls below the threshold the agencies set. PMI protects the lender if you default and can be removed once you reach sufficient equity.

Local taxes based on your home's assessed value, often collected monthly through escrow as part of your mortgage payment.

Limits on how much an ARM's interest rate can rise at each adjustment and over the life of the loan, protecting you from large jumps.

An agreement to hold a rate for a stated period, subject to its conditions. Changes to application details or expiration of the lock can affect the rate or cost; review the written lock terms.

Refinancing to change your interest rate and/or loan term without taking additional cash out.

Re-amortizing your loan after a large principal payment to lower the monthly payment while keeping the same rate and term.

Government charges to officially record the deed and mortgage in public records.

Replacing your existing mortgage with a new one, typically to get a lower interest rate, change the loan term, or access home equity (cash-out refinance).

The Real Estate Settlement Procedures Act — a federal law governing closing-cost disclosures and prohibiting kickbacks in the settlement process.

On most refinances of a primary residence, a three-business-day window during which you can cancel the loan.

The minimum time you must own a property or hold funds before they qualify for certain loan or refinance programs.

Any loan secured by your home that sits behind your primary (first) mortgage in repayment priority, such as a home equity loan or HELOC.

Closing costs the seller agrees to pay on the buyer's behalf, subject to limits set by the loan program.

The Secured Overnight Financing Rate — the benchmark index that has largely replaced LIBOR for adjustable-rate loans.

A simplified refinance of an existing government-backed loan with reduced documentation — FHA Streamline for FHA loans, IRRRL for VA loans.

Insurance that protects against financial loss from defects in title to a property. Lenders require a lender's title policy; buyers typically also purchase an owner's policy.

An examination of public records to confirm the seller's legal right to sell and to surface any liens or claims against the property.

A state or local tax on transferring property ownership, paid at closing; the rate and who pays it vary by location.

A federal law requiring lenders to clearly disclose loan costs and terms, including the APR, so borrowers can compare offers.

The process by which a lender evaluates your creditworthiness and the property to determine whether to approve your mortgage application.

A lender fee for evaluating and approving your loan, typically included in closing costs.

A one-time FHA mortgage insurance premium, set by FHA as a percentage of the loan amount, that can usually be financed into the loan.

A fee set by the VA according to loan type, down payment and prior use. Qualifying exemptions apply; consult current VA guidance. Financing the fee adds to the loan balance.

A VA-backed mortgage for eligible veterans, service members and surviving spouses. No PMI is required; a down payment may not be required if entitlement, appraisal and lender requirements are met. Funding fees and closing costs may apply.

The interest rate a lender offers to mortgage brokers, who then work with borrowers. A broker prices your scenario against wholesale lender pricing and guidelines on your behalf.