Mortgage Glossary: Your Guide to the Home Buying Process
We understand—buying a home can feel overwhelming, especially when mortgage terms start sounding like a foreign language. That’s why we’ve put together this ever-growing glossary to help you navigate the process with confidence.
Whether you’re a first-time buyer or a seasoned homeowner, knowing these terms will empower you to make informed decisions. Don’t see a term you need? Let us know, and we’ll add it ASAP!
Mortgage Terms You Should Know
Mortgage Types
- 30-Year Fixed Mortgage – A home loan with a fixed interest rate and a repayment term of 30 years.
- 15-Year Fixed Mortgage – A home loan with a fixed interest rate and a repayment term of 15 years.
- 5/1 ARM – An adjustable-rate mortgage with a fixed interest rate for the first five years, then adjusts annually.
- 7/1 ARM – An adjustable-rate mortgage with a fixed interest rate for the first seven years, then adjusts annually.
- Adjustable-Rate Mortgage (ARM) – A loan with an interest rate that can change over time based on market conditions. Most ARMs start with a fixed-rate period before adjusting.
- Balloon Mortgage – A short-term loan with lower monthly payments, followed by a large lump sum at the end of the term.
- Bridge Loan – A short-term loan that helps a borrower purchase a new home before selling their current one.
- Conventional Mortgage – A home loan that is not backed by the federal government.
- Construction Mortgage – A loan used to finance the building of a home. Funds are released to the builder as construction progresses and convert into a standard mortgage upon completion.
Mortgage Process & Terms
- Amortization – A schedule showing how loan payments are applied to interest and principal over time.
- Annual Percentage Rate (APR) – The total cost of borrowing a loan, including interest and fees, expressed as a percentage.
- Appraisal – A professional estimate of a home’s value based on market conditions and property condition.
- Assumption – The process where a buyer takes over an existing mortgage loan from the seller.
- Caps – Limits on how much the interest rate can increase on an adjustable-rate mortgage.
- Closing – The final step in the mortgage process where all paperwork is signed, and ownership officially transfers to the buyer.
- Closing Costs – Fees associated with finalizing a mortgage, including lender fees, title insurance, and attorney fees.
- Debt-to-Income Ratio (DTI) – The percentage of a borrower’s income that goes toward monthly debt payments, including the mortgage.
- Down Payment – An upfront payment toward the purchase price of a home, typically ranging from 3% to 20%.
- Equity – The difference between what you owe on your mortgage and the current market value of your home.
- Escrow – An account managed by the lender where a portion of the borrower’s property taxes and insurance payments are held and paid when due.
- Fixed-Rate Mortgage – A home loan with a set interest rate that does not change over the life of the loan.
- Foreclosure – The legal process where a lender takes possession of a home when a borrower fails to make payments.
Loan Features & Refinancing
- Buy-Down – Paying an upfront fee to secure a lower interest rate.
- Cash-In Refinance – A refinance where the borrower pays extra money to reduce the loan balance.
- Cash-Out Refinance – A refinance that allows the homeowner to borrow against their home equity for large expenses, such as renovations or debt consolidation.
- Loan-to-Value Ratio (LTV) – A percentage comparing the mortgage amount to the home’s value.
- Mortgage Interest – The cost of borrowing money for a home loan, expressed as a percentage.
- Origination Fee – A fee paid to the lender for processing a mortgage application.
- Par Rate – The standard interest rate a lender offers without discount points.
- Points – Fees paid upfront to lower a mortgage interest rate (also called “buying down the rate”).
- Principal – The original loan amount or remaining balance owed on a mortgage.
- Private Mortgage Insurance (PMI) – Insurance required by lenders when a borrower puts down less than 20%, protecting the lender in case of default.
- Rate-and-Term Refinance – A refinance that changes the interest rate, loan term, or both without taking out additional cash.
- Refinancing – Replacing an existing mortgage with a new loan, often to get a lower interest rate, different loan term, or access home equity.
Additional Financial & Legal Terms
- Credit History – A record of a borrower’s past credit use, including payments and loans.
- Credit Report – A detailed summary of a borrower’s credit history from credit bureaus.
- Credit Score – A numerical representation of a borrower’s creditworthiness, impacting mortgage eligibility and interest rates.
- Homeowners Insurance – Insurance protecting against property damage, required before closing a mortgage.
- Loan Estimate – An estimate of expected closing costs provided by the lender.
- Loan Officer – A mortgage professional who assists borrowers in applying for and securing a home loan.
- Loan Origination – The start of the mortgage process when a borrower applies for a loan.
- Real Estate Tax Deduction – A tax benefit allowing homeowners to deduct property taxes from their federal income taxes.
- Tax Break – A reduction in taxes due to mortgage-related expenses.
- Underwriter – A professional who assesses a borrower’s financial situation to determine mortgage approval.
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