Mortgage Glossary

27 entries

Adjustable Rate Mortgage

An ARM has an interest rate that can change under the loan's terms. Many have an initial fixed-rate period followed by adjustments tied to an index, margin and applicable caps. Initial pricing is not guaranteed to be lower than a fixed-rate loan.

Amortization

The repayment of a loan through scheduled payments over time. An amortization schedule shows how payments are allocated to principal and interest under the stated assumptions.

Annual Percentage Rate

APR is a broader measure of borrowing cost than the interest rate. It includes interest and certain fees or finance charges expressed as a yearly rate. It does not necessarily include every transaction cost; compare the Loan Estimate and your time horizon.

Appraisal

A professional opinion of property value based on the relevant property characteristics, market evidence and appraisal standards. It is different from a home inspection and is not a loan approval.

Bi-Weekly Mortgage

A payment arrangement generally involving half of a monthly payment every two weeks. Whether it reduces principal or interest depends on how payments are credited and any program fees; confirm the lender's terms before enrolling.

Brownfields

Property where actual or potential environmental contamination can complicate reuse or redevelopment. Environmental review and financing requirements depend on the property and transaction.

Closing Costs

Charges associated with completing a mortgage and property transaction, such as lender fees, appraisal, title services, recording and applicable taxes. Actual charges are disclosed for the specific loan; some costs are prepaid or escrowed rather than lender fees.

Construction Mortgage

Financing used for construction, often disbursed in draws as work progresses. Permanent financing or conversion depends on the structure and lender terms; not every construction loan converts automatically.

Debt-to-income Ratio

DTI generally compares required monthly debt payments with gross monthly income. The debts and income counted, and any limits, depend on program and lender requirements. It is one factor in review, not an approval by itself.

Down Payment

The portion of a purchase price paid from the buyer's funds or eligible sources rather than the primary mortgage. Requirements and allowable sources depend on the program and transaction.

Equity

The difference between a property's value and the debt secured by it. Equity can change as property value and loan balances change; it is not necessarily cash available to withdraw.

Escrow

Funds held for a specific transaction or obligation. A mortgage escrow account may collect amounts for property taxes and insurance, which the servicer pays when due. Requirements and amounts vary by loan and property.

Fair Housing Act

Federal law addressing discrimination in housing and housing-related transactions. Applicable protections and obligations should be reviewed with appropriate professionals; this glossary is not legal advice.

Fixed Rate Mortgage

A mortgage with an interest rate that remains fixed for the specified loan term. Principal-and-interest payments may be stable while taxes, insurance and other payment components can change.

Good Faith Estimate

GFE is a disclosure term used for certain loans and historically for mortgage cost estimates. Most covered closed-end consumer mortgages use a Loan Estimate and Closing Disclosure instead. Ask which disclosures apply to your transaction.

Homeowner's Insurance

Property insurance covering specified risks subject to policy terms and exclusions. A lender typically has coverage and documentation requirements for its collateral; confirm the required policy with the lender and insurer.

Loan-to-value Ratio

LTV compares the loan amount with the applicable property value, expressed as a percentage. Valuation method, maximum LTV and mortgage-insurance requirements vary by program. There is no universal rule that every mortgage must be at least or at most 80% LTV.

Mortgage

A loan secured by real property, or the security instrument associated with it, depending on context. Approval, repayment and collateral rights depend on the applicable loan documents and law.

Origination Fee

A charge for originating a loan. It may appear alongside other lender charges and third-party costs on your disclosures; compare the actual Loan Estimate rather than assuming every application or appraisal charge is an origination fee.

Points

Charges expressed as a percentage of the loan amount. Discount points may be paid upfront for a lower interest rate. Whether they are worthwhile depends on costs, the pricing offered and how long the loan is kept—not a guaranteed saving.

Principal

The amount borrowed or the outstanding loan balance excluding interest and certain charges. The balance generally decreases when payments are applied to principal, according to the loan's terms.

Private Mortgage Insurance

PMI generally protects the lender if a borrower defaults on a conventional mortgage. It is commonly required with a down payment below 20% or certain higher-LTV refinances. It does not protect the borrower from repayment obligations, and cancellation rules and loan terms vary.

Rent Supplement

Historical federal housing-assistance terminology for payments made on behalf of eligible tenants. This reference does not establish current program availability or eligibility.

Rental Rehabilitation

A housing-program term associated with support for rehabilitation of rental housing. Historical program references do not establish that funds or programs are currently available.

Settlement Costs

Costs associated with completing the transaction at settlement or closing. Review the applicable disclosures for the actual charges, prepaids, escrow amounts and payment responsibilities.

Title Insurance

Insurance addressing specified title risks, defects or liens subject to the policy, exclusions and coverage limits. A lender's policy and an owner's policy serve different interests; it is not a guarantee that no title issue can ever arise.

Truth in Lending

Federal consumer-credit disclosure requirements intended to make loan costs and terms more understandable, including applicable APR and finance-charge disclosures. Requirements differ by transaction; this is not legal advice.