The words you'll hear, in plain English.
Plain-English definitions of the mortgage terms you'll hear most. Have a term we didn't cover? Ask us.
Adjustable-rate mortgage (ARM) — A loan whose interest rate can change after an initial fixed period, moving with a market index.
Amortization — How your loan is paid off over time — early payments are mostly interest, later ones mostly principal.
Annual percentage rate (APR) — A broader measure of borrowing cost that includes the interest rate plus certain fees, expressed yearly.
Closing costs — Fees to finalize your loan — things like appraisal, title, and lender charges. Often a few percent of the loan amount.
Closing Disclosure — A standardized form with your final loan terms and costs, provided at least three business days before closing.
Conforming loan — A loan at or below the limit eligible for purchase by Fannie Mae or Freddie Mac; above it is a jumbo loan.
Debt-to-income ratio (DTI) — Your monthly debt payments divided by gross monthly income — a key qualifying factor.
Down payment — The cash you put toward the purchase up front, expressed as a percentage of the price.
Earnest money — A good-faith deposit you make when your offer is accepted, applied toward your costs at closing.
Equity — The portion of your home you own outright — its value minus what you still owe.
Escrow / impound account — An account your servicer uses to collect and pay your property taxes and insurance with your monthly payment.
Fixed-rate mortgage — A loan whose interest rate stays the same for the entire term.
Loan Estimate — A standardized three-page form, given within three business days of applying, showing your estimated rate, payment, and costs.
Loan-to-value ratio (LTV) — The loan amount divided by the property value — lower LTV usually means better terms.
Mortgage insurance (PMI / MIP) — Insurance that protects the lender when your down payment is under 20%. Conventional PMI is cancellable; FHA MIP often is not.
Points (discount points) — Optional up-front fees you can pay to lower your interest rate — one point equals 1% of the loan amount.
Pre-approval — A lender's review of your credit, income, and assets that sets your buying ceiling and strengthens your offers.
Principal & interest (P&I) — The core of your monthly payment — principal pays down the balance, interest is the cost of borrowing.
Rate lock — A guarantee of your interest rate for a set period while your loan is processed.
Title insurance — Protection against problems with the property's ownership history or title.
Underwriting — The lender's verification of your file and the property to make the final loan decision.
Conventional loan — A loan not insured by a government agency (FHA/VA/USDA), typically following Fannie Mae/Freddie Mac guidelines.
Escrow (transaction) — Also refers to the neutral third party that holds funds and documents until a real-estate transaction closes.
Origination — The process of creating a new loan, sometimes accompanied by an origination fee.