Mortgage Glossary

Amortization

The process of paying off a loan over time through regular payments. A portion of each payment goes toward the principal balance and the rest goes toward interest.

Annual Percentage Rate (APR)

The total yearly cost of a mortgage, expressed as a percentage. It includes the interest rate, plus other charges or fees (such as mortgage insurance, most closing costs, points, and loan origination fees).

Appraisal

A professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage, and construction quality.

Closing Costs

Fees paid at the closing of a real estate transaction. They typically include application fees, title examination, title insurance, property taxes, and other administrative costs.

Debt-to-Income Ratio (DTI)

A personal finance measure that compares an individual's monthly debt payment to their monthly gross income. Lenders use this to measure your ability to manage monthly payments.

Down Payment

The portion of the home's purchase price paid upfront in cash. It is not part of the mortgage loan.

Earnest Money

A deposit made to a seller that represents a buyer's good faith to buy a home. It gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections.

Escrow

An account held by a third party on behalf of the two principal parties in a transaction. In mortgages, it usually holds funds for property taxes and homeowners insurance.

Fixed-Rate Mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.

Loan-to-Value Ratio (LTV)

A financial term used by lenders to express the ratio of a loan to the value of an asset purchased. A higher LTV ratio typically implies greater risk for the lender.

Mortgage Insurance (PMI/MIP)

Insurance that protects the lender in case the borrower defaults on the loan. It's usually required when the down payment is less than 20% of the home's purchase price.

Principal

The outstanding balance on a loan, excluding interest and fees.

Refinance

The process of replacing an existing mortgage with a new one, typically to get a better interest rate, change the loan term, or cash out home equity.

Title Insurance

Insurance that protects the lender and buyer against any financial loss related to defects in the title to the property.

Underwriting

The process a lender uses to determine if the risk of offering a mortgage loan to a particular borrower is acceptable.