Mortgage Terms Glossary
Look up the mortgage words you see on Loan Estimates, preapproval letters and closing papers. Search the list for plain-English definitions.
How to use it
- Type a word or abbreviation, such as APR or escrow, into the search box.
- Read the short definition that appears.
- Clear the search to browse all terms.
- Use the guides below to learn how related terms fit together.
How do you read mortgage terms?
Most mortgage words fall into four groups: the loan itself, what it costs, the insurance that protects the lender, and the documents and steps of the process. Once you know which group a term belongs to, it is much easier to see why it matters. The searchable list above covers the common ones; this page explains how they fit together.
You will meet many of these terms first on a Loan Estimate, the three-page form a lender must send within three business days of your application. Reading it with this glossary open is a good way to learn the language.
Which terms describe the loan itself?
These terms tell you how much you borrow, for how long and how it is repaid. They set the shape of your monthly payment.
- Principal: the amount you borrow and still owe, not counting interest.
- Interest rate: the yearly cost of borrowing, shown as a percentage of the balance.
- Term: how long you have to repay, such as 15 or 30 years.
- Fixed-rate mortgage: the rate stays the same for the life of the loan.
- Adjustable-rate mortgage (ARM): the rate is fixed for a set period, then can change on a schedule.
- Amortization: the gradual payoff of the loan. The Consumer Financial Protection Bureau (CFPB) explains that early payments go mostly to interest and later ones mostly to principal.
- Conforming loan: a conventional loan within the loan limits set each year for Fannie Mae and Freddie Mac. Jumbo loans are above those limits.
Which terms describe what the loan costs?
Cost terms tell you what you pay beyond the amount borrowed. Comparing them across offers is how you find the better deal.
- APR (annual percentage rate): the CFPB says the APR reflects the interest rate plus points, broker fees and other charges you pay to get the loan.
- Discount points: upfront fees that lower your rate. One point usually equals 1% of the loan amount.
- Lender credits: the opposite of points. You accept a higher rate and the lender pays part of your closing costs.
- Closing costs: fees for the loan and the purchase, such as origination, appraisal, title and recording.
- Prepaids: costs you pay in advance at closing, such as interest until the first payment and the first year of insurance.
- PITI: principal, interest, taxes and insurance, the four main parts of the monthly payment.
- Escrow account: an account your lender sets up to pay property taxes and insurance for you from part of each payment.
Which terms describe mortgage insurance?
Mortgage insurance protects the lender, not you, when your down payment is small. The name and rules depend on the loan type, and the difference can be worth thousands of dollars.
| Term | Loan type | What it is | Can it end? |
|---|---|---|---|
| PMI (private mortgage insurance) | Conventional | Insurance from a private company, usually needed with less than 20% down | Can be cancelled on request at 80% of original value; generally ends at 78% |
| MIP (mortgage insurance premium) | FHA | HUD’s premium: 1.75% upfront plus an annual premium | Lasts 11 years with 10%+ down; otherwise usually the life of the loan |
| Funding fee | VA | A one-time fee instead of monthly insurance | Paid once; some borrowers are exempt |
The CFPB explains that PMI protects the lender if you stop paying. FHA’s rates come from HUD Mortgagee Letter 2023-05.
Which terms describe the process and documents?
Process terms mark the steps between applying and getting your keys. Each comes with its own document or deadline.
- Prequalification: an early estimate of what you may borrow, often based on information you report.
- Preapproval: a lender’s conditional statement of how much it may lend after reviewing your finances.
- Debt-to-income ratio (DTI): your monthly debt payments divided by gross monthly income, as the CFPB defines it.
- Loan Estimate: the form showing your estimated rate, payment and closing costs, due within three business days of applying.
- Rate lock: a promise that your rate stays the same until closing if you close on time and your application does not change.
- Appraisal: an independent estimate of the home’s value for the lender.
- Underwriting: the lender’s review of your income, assets, credit and the property.
- Closing Disclosure: the final terms and costs, due at least three business days before closing.
- Servicer: the company that collects your payments and manages escrow after closing.
Where should you go next?
Put the terms to work. The home buying checklist shows where each one comes up, the loan program quiz points you to programs worth asking about, and the mortgage payment calculator shows how PITI and mortgage insurance add up.
For deeper explanations, read FHA vs. conventional loans, should you buy mortgage points and how much closing costs are.
Questions about this calculator
What is the difference between the interest rate and the APR?
The interest rate is the yearly cost of borrowing the loan amount. The APR also includes points, broker fees and other charges you pay to get the loan, so it is usually higher. Compare APRs to see the fuller cost of different offers.
What does PITI stand for?
Principal, interest, taxes and insurance. Those are the main parts of most monthly mortgage payments. Mortgage insurance and HOA dues are often added on top.
What is the difference between PMI and MIP?
PMI is private mortgage insurance on conventional loans, usually required with less than 20% down and removable later. MIP is the mortgage insurance premium on FHA loans, set by HUD, with an upfront and an annual part.
What is an escrow account?
An account your lender sets up to pay property taxes and homeowners insurance. Part of each monthly payment goes into it, and your servicer pays those bills for you.
What is the difference between a lender and a servicer?
The lender makes the loan. The servicer collects your payments, manages escrow and handles questions after closing. They can be the same company or different ones, and servicing can be transferred.
What does LTV mean?
Loan-to-value ratio: your loan amount divided by the home's value. A $270,000 loan on a $300,000 home is a 90% LTV. Lower LTVs usually mean less risk for the lender and lower costs for you.
What are discount points?
Fees you pay at closing to lower your interest rate. One point usually equals 1% of the loan amount. They pay off only if you keep the loan long enough for the monthly savings to cover the upfront cost.
What is amortization?
The way a loan is paid off over time with regular payments. Early payments go mostly to interest, and later payments go mostly to principal, even though the payment stays the same on a fixed-rate loan.
Sources
- What is the difference between a mortgage interest rate and an APR? (opens in a new tab)Consumer Financial Protection Bureau · Checked
- What is an escrow or impound account? (opens in a new tab)Consumer Financial Protection Bureau · Checked
- What is amortization and how could it affect my loan? (opens in a new tab)Consumer Financial Protection Bureau · Checked
- What is private mortgage insurance? (opens in a new tab)Consumer Financial Protection Bureau · Checked
- What's a lock-in or a rate lock? (opens in a new tab)Consumer Financial Protection Bureau · Checked
- What is a debt-to-income ratio? (opens in a new tab)Consumer Financial Protection Bureau · Checked
- What is a loan-to-value ratio and how does it relate to my costs? (opens in a new tab)Consumer Financial Protection Bureau · Checked
- Mortgagee Letter 2023-05: Reduction of FHA Annual Mortgage Insurance Premium Rates (opens in a new tab)U.S. Department of Housing and Urban Development · Checked
This tool gives estimates for education, not a loan offer or financial advice. Your lender’s numbers, fees and rules may differ. How we research · Disclaimer