How to Use This Glossary
This glossary is your go-to reference for mortgage terms you might encounter on this site, in lender documents, or in conversations with mortgage professionals. It's designed for quick lookups: find the term you need, read a short definition, and understand how it fits into the bigger picture of getting a home loan.
Terms are grouped by category for easy browsing. Each entry focuses on practical meaning rather than legalistic detail, so you can grasp the concept quickly and move on.
- Browse the categories below to find a term.
- Each definition includes context to help you understand why the term matters.
- Check the FAQ for answers to common questions about APR, escrow, and PMI.
Common Mortgage Abbreviations
Mortgage paperwork is full of abbreviations. Here are some of the most common ones you'll see.
- APR: Annual Percentage Rate – the total cost of borrowing, including interest and fees, expressed as a yearly rate.
- ARM: Adjustable-Rate Mortgage – a loan with an interest rate that can change over time.
- FHA: Federal Housing Administration – a government agency that insures certain mortgages, making them easier to qualify for.
- LTV: Loan-to-Value ratio – the loan amount divided by the property's appraised value, expressed as a percentage.
- PMI: Private Mortgage Insurance – insurance required when your down payment is less than 20%.
- PTI: Payment-to-Income ratio – your monthly mortgage payment divided by your gross monthly income.
Key Terms Explained
These are the terms you'll most likely encounter when shopping for a mortgage.
- Amortization: The process of paying off a loan through regular payments over time.
- Amortization Schedule: A table showing each payment's allocation to principal and interest over the loan term.
- Closing Costs: Fees paid at the closing of a real estate transaction, such as appraisal, title search, and loan origination fees.
- Down Payment: The initial payment you make on a home purchase, typically expressed as a percentage of the purchase price.
- Escrow: A neutral third party that holds funds or documents until certain conditions are met.
- Fixed-Rate Mortgage: A mortgage with a constant interest rate for the entire loan term.
- Home Equity: The difference between the home's current value and the outstanding mortgage balance.
- Interest Rate: The annual cost of borrowing the principal amount, expressed as a percentage.
- Loan Term: The length of time you have to repay the loan, typically 15 or 30 years.
- Mortgage: A loan used to purchase or refinance a home, secured by the property itself.
- Principal: The original amount of money you borrow, excluding interest and fees.
- Refinance: The process of replacing an existing mortgage with a new one, often to get a lower interest rate or change loan terms.
- Title: Legal ownership of a property. A title search ensures the title is clear of liens or claims.
Advanced Terms
Once you're familiar with the basics, these advanced terms will help you understand more complex mortgage products and concepts.
- Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that adjusts periodically based on a benchmark index.
- Balloon Payment: A large lump-sum payment due at the end of a loan term after a series of smaller payments.
- Conforming Loan: A loan that meets the standards set by Fannie Mae and Freddie Mac, allowing it to be sold to them.
- Jumbo Loan: A mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency.
- Loan Origination Fee: A fee charged by the lender for processing a new loan application.
- Loan-to-Value Ratio (LTV): A measure of the loan amount relative to the property's appraised value; higher LTV often requires PMI.
- Mortgage Insurance: Insurance that protects the lender if the borrower defaults; required on certain loans.
- Pre-Approval: A lender's preliminary determination of how much you can borrow, based on your financial information.
- Rate Lock: A lender's guarantee that the interest rate will remain available for a specified period.
- Underwriting: The process by which a lender evaluates your financial history to determine loan approval.
Games and Glossary
This glossary is tightly woven into the learning games and guides across the site. Whenever you see a mortgage term you don't recognize in a game, guide, or calculator tool, flip back here for a quick definition.
The glossary also enriches the interactive learning experience by giving you a shared vocabulary. After playing a game or working through a guide, use this glossary to solidify your understanding of key concepts.
- Quick definitions help you stay in the flow of a game without breaking your focus.
- Each term is written to be clear enough for a first-time homebuyer while still useful for seasoned investors.
- Use the glossary alongside the comparison and rate tools to better understand what the numbers mean.
Frequently asked questions
What is APR?
APR stands for Annual Percentage Rate. It represents the total yearly cost of borrowing, including interest and certain fees, expressed as a percentage. Unlike the nominal interest rate, APR gives a more complete picture of the loan's cost, making it easier to compare different mortgage offers.
What is escrow?
Escrow is a legal arrangement where a neutral third party holds funds or documents until certain conditions are met. In a mortgage, escrow accounts are often used to set aside money for property taxes and homeowners insurance, ensuring these payments are made on time. The lender or servicer manages the escrow account, collecting a portion with each monthly payment.
What does PMI mean?
PMI stands for Private Mortgage Insurance. This insurance protects the lender if you default on the loan. PMI is typically required when your down payment is less than 20% of the home's purchase price. The cost is usually added to your monthly mortgage payment or paid as an upfront fee.