Understand mortgage terminology with our comprehensive glossary of terms and definitions
A mortgage with an interest rate that can change periodically based on market conditions. ARMs typically start with a lower rate than fixed-rate mortgages but can increase over time.
The process of paying off a loan over time through regular payments. Each payment includes both principal and interest, with the proportion of principal increasing over time.
The total cost of borrowing expressed as a yearly rate, including the interest rate plus other loan costs such as broker fees, discount points, and some closing costs.
A professional assessment of a property's market value conducted by a licensed appraiser. Lenders require appraisals to ensure the property is worth the loan amount.
Fees and expenses paid at the closing of a real estate transaction. These may include loan origination fees, appraisal fees, title insurance, and other costs.
The percentage of your gross monthly income that goes toward paying debts, including your mortgage payment. Lenders use this ratio to determine loan eligibility.
The initial payment made when buying a home, typically expressed as a percentage of the purchase price. The remaining amount is financed through a mortgage.
A neutral third-party account that holds funds during a real estate transaction. Also refers to an account where the lender holds funds for property taxes and insurance.
A mortgage with an interest rate that remains the same throughout the entire loan term, providing predictable monthly payments.
A document that provides an estimate of the fees and costs associated with a mortgage loan. Lenders must provide this within three days of receiving a loan application.
Insurance that protects your home and personal property against damage or loss. Lenders typically require this insurance as a condition of the mortgage.
The percentage of the loan amount that the lender charges for borrowing money. This is separate from the APR, which includes other loan costs.
A loan used to purchase real estate, where the property serves as collateral. The borrower agrees to pay back the loan amount plus interest over a specified period.
Insurance that protects the lender if the borrower defaults on the loan. Required for conventional loans with less than 20% down payment and for FHA loans.
A fee charged by the lender for processing the mortgage loan application. This is typically expressed as a percentage of the loan amount.
Fees paid directly to the lender at closing in exchange for a reduced interest rate. One point equals 1% of the mortgage amount.
A written commitment from a lender stating that you qualify for a mortgage up to a specific amount. This is based on verified financial information.
The original amount of money borrowed in a loan, not including interest. Each mortgage payment includes both principal and interest.
Insurance that protects the lender if the borrower defaults on a conventional loan with less than 20% down payment. The borrower pays the premium.
The process of replacing an existing mortgage with a new loan, typically to secure a lower interest rate or change loan terms.
Legal ownership of a property. Title insurance protects against claims or hidden defects in the title.
The process of evaluating a loan application to determine the borrower's creditworthiness and the risk of lending money.
