Mortgage glossary

42 mortgage terms defined in one or two plain sentences. Link to any term directly.

Adjustable-rate mortgage (ARM)

A loan whose rate is fixed for an initial period, such as 5, 7, or 10 years, then adjusts periodically based on a market index plus a margin, within caps.

Amortization

Paying off a loan with regular payments that cover interest first and then chip away at principal. Early payments are mostly interest; later ones are mostly principal.

Annual percentage rate (APR)

The yearly cost of a loan including the interest rate plus certain fees, expressed as a percentage. It is useful for comparing offers with different fees.

Appraisal

An independent estimate of a home's market value, ordered by the lender to make sure the home supports the loan amount.

Cash-out refinance

A refinance for more than you owe, paying you the difference in cash. It replaces your existing first mortgage.

Closing costs

Fees and prepaid items due at closing, such as lender fees, appraisal, title insurance, recording fees, and prepaid taxes and insurance. Often 2% to 5% of the loan amount.

Closing Disclosure

A five-page form showing your final loan terms and costs. You must receive it at least three business days before closing.

Combined loan-to-value (CLTV)

All loans secured by a home divided by its value. Home equity lenders use it to set how much you can borrow.

Conforming loan

A mortgage that meets Fannie Mae and Freddie Mac rules, including the loan limit: $832,750 for one-unit homes in most areas in 2026.

Contingency

A condition in a purchase contract, such as a satisfactory inspection, appraisal, or financing, that lets the buyer back out without losing earnest money.

Debt-to-income ratio (DTI)

Your monthly debt payments, including the new mortgage, divided by gross monthly income. Many programs allow up to about 43% to 50%.

Discount points

Upfront fees paid to lower your interest rate. One point equals 1% of the loan amount.

Down payment

The part of the purchase price you pay upfront rather than borrow.

Draw period

The first phase of a HELOC, often 10 years, when you can borrow from the line and may pay interest only.

Earnest money

A good-faith deposit made with your offer, held in escrow and credited toward your costs at closing.

Equity

Your home's value minus what you owe on it.

Escrow

An account your servicer uses to collect and pay property taxes and insurance. Also the neutral third party that holds funds during a purchase.

FHA loan

A mortgage insured by the Federal Housing Administration that allows 3.5% down with a credit score of 580 or higher.

Fixed-rate mortgage

A loan whose interest rate and principal-and-interest payment never change for the life of the loan.

Funding fee

A one-time fee on VA loans that helps fund the program. Some veterans, such as those receiving VA disability compensation, are exempt.

HELOC

Home equity line of credit: a revolving, usually variable-rate credit line secured by your home.

Home equity loan

A fixed-rate lump-sum loan secured by your home, repaid in equal monthly payments. Often called a second mortgage.

Jumbo loan

A mortgage larger than the conforming loan limit for its county. It usually has stricter credit and down payment requirements.

Loan Estimate

A standard three-page form a lender must give you within three business days of applying, showing your rate, payment, and costs.

Loan-to-value ratio (LTV)

Your loan amount divided by the home's value. A $360,000 loan on a $400,000 home is a 90% LTV.

Mortgage insurance premium (MIP)

Mortgage insurance on FHA loans: an upfront premium of 1.75% plus an annual premium paid monthly.

Origination fee

A lender's charge for processing and underwriting your loan, often shown as a percentage of the loan.

PITI

Principal, interest, taxes, and insurance: the four main parts of a monthly mortgage payment.

Pre-approval

A lender's conditional commitment to lend a specific amount after checking your credit and verifying income and assets.

Pre-qualification

An informal estimate of what you might borrow, often based on information you report without verification.

Prime rate

A benchmark rate banks use for many variable-rate loans, including most HELOCs. It generally moves with the Federal Reserve's target rate.

Private mortgage insurance (PMI)

Insurance on conventional loans with less than 20% down that protects the lender. You can ask to cancel it at 80% LTV, and it ends automatically at 78% of the original value on schedule.

Rate lock

A lender's promise to hold a specific interest rate for a set period, such as 30 to 60 days, while your loan closes.

Rate-and-term refinance

A refinance that changes your rate, term, or both without taking significant cash out.

Recast

Paying a lump sum toward principal and having the lender recalculate a lower payment on the same rate and term, usually for a small fee.

Repayment period

The second phase of a HELOC, when you can no longer draw and must repay principal and interest.

Seasoning

How long you must have owned a home or held a loan before certain refinances are allowed.

Streamline refinance

A simplified refinance of an FHA loan (FHA Streamline) or VA loan (IRRRL) with reduced paperwork and often no appraisal.

Title insurance

Insurance that protects the lender, and optionally the owner, against problems with the home's ownership history.

Underwriting

The lender's review of your income, assets, credit, and property to decide whether to approve the loan.

USDA loan

A zero-down mortgage backed by the U.S. Department of Agriculture for eligible rural and suburban areas, with income limits.

VA loan

A mortgage guaranteed by the Department of Veterans Affairs for eligible service members, veterans, and some surviving spouses, often with no down payment and no monthly mortgage insurance.