Plain-English definitions of the mortgage terms you will run into, A to Z.
Amortization
The schedule that splits each payment between interest and principal so the balance reaches zero at the end of the term.
Annual Percentage Rate (APR)
The yearly cost of a loan including the interest rate plus certain fees, used to compare offers.
Adjustable-Rate Mortgage (ARM)
A loan with a fixed intro rate that later adjusts on a schedule within caps.
Cash to Close
The total money due at closing, your down payment plus closing costs, minus credits.
Closing Costs
Lender and third-party fees due at closing, commonly 2% to 5% of the price.
Conforming Loan
A loan at or under the conforming limit that meets Fannie Mae and Freddie Mac rules.
Conventional Loan
A mortgage not backed by a government program.
Debt-to-Income (DTI)
Your monthly debt payments divided by gross monthly income.
Discount Point
A fee equal to 1% of the loan paid to lower the interest rate.
Down Payment
The cash you pay toward the price up front.
Escrow
An account the servicer uses to collect and pay property taxes and insurance.
FHA Loan
A government-insured loan with lower credit and down-payment requirements.
Fixed-Rate Mortgage
A loan whose rate stays the same for the entire term.
Funding Fee
A one-time VA loan fee that replaces monthly mortgage insurance.
Jumbo Loan
A loan above the conforming limit.
Loan Estimate
A standardized form showing a loan offer's rate, fees, and cash to close.
Loan-to-Value (LTV)
The loan amount divided by the home value, as a percentage.
MIP
FHA mortgage insurance premium, charged upfront and annually.
Mortgage-Backed Security (MBS)
A bond made of pooled mortgages; its price drives mortgage rates.
Origination Fee
A lender charge for processing the loan.
PITI
Principal, interest, taxes, and insurance, the parts of a payment.
PMI
Private mortgage insurance on conventional loans with under 20% down.
Points
See discount point; each is 1% of the loan.
Pre-Approval
A lender's conditional commitment based on a reviewed application.
Principal
The amount borrowed, or the part of a payment that reduces the balance.
Rate Lock
A guarantee that freezes your rate for a set period before closing.
Refinance
Replacing your current loan with a new one to change rate, term, or pull cash out.
Underwriting
The lender's review of your credit, income, and property to approve the loan.
USDA Loan
A zero-down loan for eligible rural and suburban areas with income limits.
VA Loan
A zero-down loan for eligible veterans and service members with no monthly mortgage insurance.
