Every mortgage term you are likely to encounter, defined in plain English. Linkable by anchor, share a single definition with a friend, or jump straight from any article to the term you need.
The schedule of how each payment splits between principal and interest.
Early in a mortgage, most of the payment goes to interest. Over time, more goes to principal. An amortization schedule lays out every payment for the life of the loan.
A licensed valuation of the property.
Lenders require an appraisal to confirm the home is worth at least what you are paying. If it appraises low, the buyer and seller renegotiate or the buyer brings extra cash to cover the gap.
The total cost of borrowing expressed as a yearly rate.
APR rolls together the note rate plus most lender fees and discount points into a single annualized cost. It is more useful than rate alone for comparing two loan offers because it captures the cost of getting the loan, not just the interest. APR is not what your monthly payment is calculated from, that is the note rate.
A loan with a rate that changes after an initial fixed period.
Common terms include 5/6, 7/6, and 10/6, the first number is years fixed, the second is months between adjustments after that. ARMs typically start lower than fixed rates and are useful when you do not plan to keep the loan long term.
Limits on how much an ARM rate can change.
Caps come in three flavors: initial cap (first adjustment), periodic cap (each subsequent change), and lifetime cap (max change over the loan). Quoted as 2/1/5 means 2% initial, 1% periodic, 5% lifetime cap above the start rate.
Refinancing into a larger loan and taking the difference in cash.
Replaces your existing mortgage. The new rate applies to the full balance, including the cash you take. Tradeoff: simpler than a second lien but may raise the rate on the entire mortgage.
Fees due at closing on top of your down payment.
Includes lender fees, title insurance, recording fees, escrow setup, prepaid interest, and prepaid taxes/insurance. Typically 2-5% of the loan amount.
Final 5-page document showing actual closing numbers.
Issued at least 3 business days before closing. Compare to the LE; significant changes can trigger a new 3-day review period.
An approval that depends on satisfying remaining conditions.
Common conditions include updated paystubs, an explanation letter, additional bank statements, or appraisal review. Once conditions are met, the file is cleared to close.
A loan that meets Fannie Mae or Freddie Mac size and standards.
Conforming loans fall at or below the annual conforming loan limit set by the FHFA. They have the cleanest pricing and most flexible standards because they can be sold into the GSE market.
A non-government loan that meets Fannie or Freddie standards.
The most common loan type. Down payments from 3% with PMI, no PMI at 20% down. Pricing scales with credit and LTV.
A number summarizing your credit risk.
Credit scores depend on the model and bureau data. Classic FICO (often called FICO 2/4/5) remains in use; Enterprise-approved lenders may also use VantageScore 4.0 for eligible Fannie Mae and Freddie Mac loans. FICO 10T is not currently eligible for Enterprise delivery as of October 15, 2026. FHA, VA and other programs have separate requirements. Scores from different models are not interchangeable, and no score guarantees approval or savings.
Upfront fee to permanently lower your interest rate.
One point equals 1% of the loan amount. Buying points typically lowers the rate by an eighth or more. Points pay off if you keep the loan long enough to recoup the upfront cost through monthly savings, known as the breakeven.
The cash you put toward the home upfront.
Conventional loans require as little as 3%, FHA 3.5%, VA and USDA can be zero. Higher down payment lowers the loan amount, reduces or eliminates PMI, and improves pricing.
Monthly debt payments divided by gross monthly income.
Lenders look at front-end DTI (housing payment alone) and back-end DTI (housing plus all other minimum debt payments). Conventional loans generally cap back-end DTI around 45-50%. Lower DTI gives you more room and better pricing.
A good-faith deposit when you make an offer.
Typically 1-3% of the purchase price, held in escrow. Credited toward your down payment or closing costs at closing. Refundable under contract contingencies.
An account that holds money for taxes and insurance.
Most lenders collect 1/12 of your annual property taxes and homeowners insurance with each monthly payment. The lender holds it in escrow and pays the bills when due. Escrow can also refer to the neutral third party that holds funds during a real estate transaction until closing.
A government-insured loan with flexible credit and down payment.
Allows down payments as low as 3.5% with credit scores from 580. MIP is required and typically stays for the life of the loan.
A loan where the rate stays the same for the full term.
Common terms are 15, 20, and 30 years. Payment of principal and interest is identical every month. Taxes, insurance, and PMI can still change.
A revolving credit line secured by your home equity.
Variable rate, typically interest-only during the draw period, then amortizing during repayment. Useful for ongoing or unpredictable expenses where you want flexibility.
The window when you can borrow from a HELOC.
Usually 10 years. During the draw period, you can borrow, repay, and re-borrow up to your credit line. Most HELOCs require interest-only payments during the draw.
A second mortgage with a fixed rate and fixed payment.
You receive a lump sum at closing and pay it back over a set term, typically 5-30 years. Useful when you know exactly how much you need.
Insurance covering the home and your personal liability.
Required by lenders. Usually escrowed as part of your monthly payment. Cost varies widely by location, build, and coverage.
The cost of borrowing the money.
Calculated on the remaining principal balance each month. Lower rates and shorter terms reduce total interest paid over the life of the loan.
A loan above the conforming loan limit.
Jumbo loans cannot be sold to Fannie or Freddie, so lenders set their own standards. Expect tighter credit, reserves, and documentation requirements. Pricing varies by lender and is often very competitive.
Pricing adjustments by Fannie/Freddie based on risk.
Driven by credit score, LTV, occupancy, property type, and loan purpose. Published as a public grid; understanding it explains why two borrowers see different rates on the same day.
A standardized 3-page disclosure of the offer.
Provided within 3 business days of a complete application. Use it to compare offers between lenders apples-to-apples.
The loan amount divided by the home's value.
LTV is the percentage of the home's value financed by the loan. A $400,000 loan on a $500,000 home is 80% LTV. Lower LTV usually means a better rate, no PMI, and more program flexibility. Most conventional loans require LTV of 80% or below to avoid PMI.
The middle of your three credit bureau scores.
A common method selects the middle of a borrower's three bureau scores; with multiple borrowers, it may use the lower qualifying middle score. Selection for eligibility and pricing varies by lender and program. Keep scores within the same model, not a mixture of Classic FICO and VantageScore. Ask the lender which model and selection rule apply.
FHA's version of mortgage insurance.
MIP includes both an upfront premium financed into the loan and an annual premium paid monthly. Unlike PMI, MIP on most modern FHA loans stays for the life of the loan unless you refinance out of FHA.
A loan that does not meet the Qualified Mortgage rule.
Non-QM loans are designed for borrowers who do not fit conventional documentation (self-employed, asset-depletion, recent credit events). They use alternative income documentation like bank statements or P&L. Rates are higher to compensate.
How the property will be used: primary, second home, or investment.
Each occupancy type prices and qualifies differently. Primary residence gets the best pricing; investment property the strictest standards and highest LLPAs.
Principal, Interest, Taxes, and Insurance.
The four components of a typical mortgage payment when taxes and insurance are escrowed. Add HOA dues separately if applicable.
Insurance lenders require when you put down less than 20%.
PMI protects the lender, not you, if you default on a conventional loan with less than 20% down. It is paid monthly, added to your mortgage payment, and falls off automatically when you reach 22% equity (or you can request removal at 20%).
A lender's written estimate of how much you can borrow.
Based on a credit pull and reviewed income/asset documents. Stronger than a prequalification. Sellers and agents take preapproved buyers more seriously.
A fee for paying off the loan early.
Rare on owner-occupied conventional loans today. Some non-QM and investment loans carry one. Always confirm before closing.
A quick, informal estimate of borrowing power.
Usually based on stated information, no document review. Useful as a directional check before serious house hunting.
The amount you owe on the loan, separate from interest.
Each monthly payment pays down a portion of principal and a portion of interest. As principal drops, the interest portion of each future payment also drops.
A guarantee from the lender on your interest rate for a set window.
Once locked, your rate will not change even if the market moves, as long as you close within the lock period (typically 30, 45, or 60 days). Float-down options exist on some locks for an extra cost.
Refinancing to change the rate or term, not pull cash.
Used to lower the rate, shorten the term, or both. Typically the cleanest refinance from a pricing standpoint.
Re-amortizing your existing loan after a large principal payment.
You make a lump-sum principal payment and the lender re-runs the amortization on the lower balance. Same rate, same term, lower monthly payment. Not all loans allow recasting.
Insurance that protects against title defects.
Lender's title insurance is required by the lender. Owner's title insurance is optional but commonly purchased and protects you if a hidden title issue surfaces later.
A combined credit pull from all three bureaus.
Standard mortgage credit pull. Aggregates accounts, balances, and scores so the lender can see the full picture in one report.
The lender's review of your file before approval.
Underwriters verify income, assets, credit, property, and program eligibility. They issue conditional approval, which becomes clear-to-close once all conditions are satisfied.
A zero-down loan for eligible rural and suburban areas.
Requires the property to be in a USDA-eligible area and the borrower to meet income limits. No down payment required, modest guarantee fee.
A loan for eligible veterans and service members.
No down payment required, no monthly mortgage insurance, and competitive rates. Funding fee may apply unless exempt.
Looking for a deeper dive? Start with the calculators to see these terms applied to real numbers, or browse the blog for context on when each one matters.
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