Mortgage Glossary

Mortgage paperwork reads like a foreign language because it is designed by lawyers. Here is every term you will actually meet, defined the way a friend would explain it.

The essentials

• Amortization — repaying a loan through scheduled payments that blend principal and interest; early payments are mostly interest. See it: amortization calculator.
• APR (annual percentage rate) — the interest rate plus upfront fees expressed as a rate, for comparing offers. See it: APR calculator.
• Closing costs — the fees and prepaids due at closing, typically 2–5% of the price. See them: closing cost calculator.
• DTI (debt-to-income ratio) — monthly debts ÷ gross monthly income; the lender's core affordability test. See yours: affordability calculator.
• Escrow — an account, funded by part of your monthly payment, from which the servicer pays your property taxes and insurance.
• LTV (loan-to-value) — loan amount ÷ home value; 80% LTV is the threshold where PMI disappears on conventional loans.
• PITI — principal, interest, taxes and insurance: the complete monthly payment.
• PMI (private mortgage insurance) — insurance protecting the lender when you put under 20% down; cancellable at 80% LTV. See it: PMI calculator.
• Points — prepaid interest: 1 point = 1% of the loan, paid to lower the rate. See whether they pay: points calculator.
• Pre-approval — verified commitment of a loan amount from an underwriter. See: pre-approval guide.
• Principal — the amount you borrowed (and still owe), separate from interest.
• Underwriting — the lender's verification process for you and the property before final approval.

Rates and loan structures

• Fixed-rate mortgage — rate and principal-and-interest payment never change.
• ARM (adjustable-rate mortgage) — fixed for a set period, then adjusts by index + margin within caps. See it: ARM calculator.
• Index & margin — the benchmark (e.g., SOFR) plus the lender's fixed add-on that together set an ARM's adjusted rate.
• Interest-only loan — payments cover interest only for a period; principal is due later. See it: IO calculator.
• Balloon loan — payments based on a long schedule but the full balance comes due at a short term's end; common commercially. See it: commercial calculator.
• Jumbo loan — a loan above the conforming limit ($806,500 in most counties for 2025). See it: jumbo calculator.
• Rate lock — a lender's guarantee of a rate for a set period (often 30–60 days) while your loan closes.

Programs and fees

• Conventional loan — a mortgage following Fannie Mae/Freddie Mac guidelines, not government-insured.
• FHA loan / MIP — government-insured loan; MIP is its mortgage insurance premium (1.75% upfront + 0.55%/yr typical). See it: FHA calculator.
• VA loan / funding fee — veterans' program with 0% down; the funding fee is a one-time program charge. See it: VA calculator.
• USDA loan — zero-down program for eligible rural/suburban areas and incomes. See it: USDA calculator.
• HELOC — home equity line of credit: a revolving line secured by your home, usually variable-rate. See it: HELOC calculator.
• HECM / reverse mortgage — FHA's reverse mortgage for homeowners 62+. See it: reverse calculator.
• Loan Estimate / Closing Disclosure — the standard federal forms disclosing your loan's costs (before application decision, and before closing, respectively).
• Origination fee — the lender's charge for making the loan, part of Section A.
• Title insurance — protects against ownership disputes over the property's past; a required closing cost in most states.
• Appraisal — an independent valuation of the home the lender orders to confirm the price supports the loan.
• Refinance — replacing your mortgage with a new one, usually for a better rate or term. See it: refinance calculator.
• Recast — re-amortizing your existing loan after a large principal payment, for a small fee, without refinancing.
• Servicer — the company that collects your payments and manages escrow after closing (often not your original lender).

Ready to see these terms with your own numbers? Start at the calculator library.