Mortgage Glossary
Our glossary page contains a comprehensive list of terms and definitions related to the mortgage industry, designed to help you better understand the mortgage process and make informed decisions about your home financing.
From common terms to more specialized terms, our glossary provides detailed explanations of key concepts and industry jargon. Whether you're a first-time homebuyer, a seasoned investor, or somewhere in between, this glossary is a valuable resource that can help you navigate the complex world of mortgages with confidence.
Key Mortgage Terms
Adjustable-rate mortgage (ARM)
A type of mortgage loan in which the interest rate fluctuates over the life of the loan, based on changes in a specified index.
Amortization
The process of gradually paying off a debt, such as a mortgage, over a period of time through regular payments.
Annual percentage rate (APR)
The total cost of borrowing money over the life of a loan, expressed as a percentage rate.
Appraisal
An evaluation of the value of a property, conducted by a licensed appraiser.
Balloon payment
A large, one-time payment that is due at the end of a loan term, often associated with certain types of mortgage loans
Bridge loan
A short-term loan used to bridge the gap between the purchase of a new property and the sale of an existing property
Cash-out refinance
A type of mortgage refinance in which the borrower takes out a new loan for more than the remaining balance on their existing mortgage, and uses the difference as cash.
Certificate of eligibility (COE)
A document issued by the Department of Veterans Affairs (VA) that certifies a veteran's eligibility for a VA loan
Closing
The final stage of a real estate transaction, in which the legal transfer of ownership and funds occurs.
Closing costs
The fees and charges associated with the final steps of a real estate transaction, such as appraisal fees, title insurance, and attorney fees.
Collateral
Property or assets that are used as security for a loan.
Commission
A fee paid to a real estate agent or broker for their services in facilitating a real estate transaction.
Conforming loan
A mortgage loan that meets the guidelines set by Fannie Mae and Freddie Mac, the government-sponsored entities that purchase the majority of mortgages in the US.
Conventional mortgage
A mortgage loan that is not insured or guaranteed by the government, typically requiring a higher down payment and more stringent credit requirements.
Credit report
A detailed report of an individual's credit history, used by lenders to assess creditworthiness.
Debt-to-income ratio (DTI)
A ratio that compares an individual's monthly debt payments to their monthly gross income, used to assess creditworthiness.
Default
Failure to make timely payments on a loan or mortgage, resulting in the borrower being in breach of the loan agreement.
Delinquency
Failure to make a payment on a loan or mortgage by its due date.
Down payment
The amount of money paid upfront by a borrower when purchasing a property, typically a percentage of the total purchase price.
Earnest money deposit
A deposit made by a buyer to demonstrate their commitment to a real estate transaction.
Equity
The difference between the current value of a property and the outstanding balance of any liens or loans on the property.
Escrow
An account held by a third-party that is used to hold funds for a real estate transaction, typically used to pay for property taxes and insurance.
Fixed-rate mortgage
A type of mortgage loan in which the interest rate remains the same for the entire term of the loan.
Foreclosure
The legal process by which a lender seizes and sells a property due to the borrower's failure to make timely mortgage payments.
Home equity line of credit (HELOC)
A type of loan in which a borrower can access funds based on the equity in their home, similar to a credit card.
Home inspection
An examination of a property's condition, typically conducted by a licensed home inspector, prior to a real estate transaction.
Homeowner's insurance
Insurance that provides coverage for damages to a property and liability for injuries or damage caused by the property owner.
Housing expense ratio (HER)
A ratio that compares a borrower's housing expenses to their monthly gross income, used to assess creditworthiness.
Interest rate
The percentage charged by a lender for borrowing money, usually expressed as an annual percentage rate (APR).
Jumbo mortgage
A mortgage loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac, typically requiring higher down payments and more stringent credit requirements.
Loan modification
A change made to the terms of an existing mortgage loan, typically to make it more affordable for the borrower.
Loan origination fee
A fee charged by lenders to cover the costs of processing a mortgage loan.
Loan servicing
The process of managing a mortgage loan after it has been originated, including collecting payments and managing escrow accounts.
Loan-to-value (LTV) ratio
The ratio of the loan amount to the value of the property being financed, expressed as a percentage.
Margin
The amount added to the index rate of an adjustable-rate mortgage to determine the interest rate charged to the borrower.
Maturity date
The date on which a mortgage loan must be paid in full.
Mortgage insurance
Insurance that protects the lender in case the borrower defaults on their mortgage payments, typically required for loans with an LTV ratio of 80% or higher.
Mortgage note
A legal document that outlines the terms of a mortgage loan, including the interest rate, payment schedule, and borrower and lender obligations.
Negative amortization
A situation in which the payment made on a loan is not enough to cover the interest owed, resulting in the balance of the loan increasing over time.
Origination
The process of applying for and obtaining a mortgage loan.
Pre-approval
The process of obtaining a preliminary approval for a mortgage loan, based on a borrower's creditworthiness and financial situation.
Private mortgage insurance (PMI)
Insurance that protects the lender in case the borrower defaults on their mortgage payments, typically required for loans with an LTV ratio of 80% or higher.
Property taxes
Taxes paid by property owners to local governments based on the assessed value of their property.
Refinancing
The process of replacing an existing mortgage loan with a new one, typically to take advantage of lower interest rates or better terms.
Reverse mortgage
A type of loan in which a borrower can access the equity in their home, typically used by older homeowners to supplement retirement income.
Second mortgage
A mortgage loan taken out in addition to a primary mortgage, typically used to finance a portion of the purchase price or for home improvements.
Title
A legal document that establishes ownership of a property.
Underwriting
The process of assessing a borrower's creditworthiness and financial situation to determine their eligibility for a mortgage loan.
USDA loan
A mortgage loan guaranteed by the US Department of Agriculture, typically used to finance homes in rural or suburban areas.
VA loan
A mortgage loan guaranteed by the US Department of Veterans Affairs, available to eligible veterans, active-duty service members, and surviving spouses.