Mortgage Glossary

Plain-English definitions for the most common mortgage terms.

Amortization

The process of paying off a loan over time through regular payments that include interest and principal.

Annual Percentage Rate. A broader measure of borrowing cost than the interest rate; can include certain fees.

Adjustable-Rate Mortgage. The interest rate can change after an initial fixed period based on an index + margin.

Limits on how much an ARM rate can change: initial cap (first reset), periodic cap (each reset), and lifetime cap (maximum over the loan).

The amount you pay upfront toward the purchase price. Can be expressed as dollars or a percentage.

Debt-to-Income ratio. Your monthly debt payments divided by gross monthly income, used by lenders to assess affordability.

An account managed by the servicer to pay property taxes and insurance on your behalf, funded via your monthly payment.

A loan with an interest rate that stays the same for the entire term.

Homeowners Association dues. Monthly or annual fees for shared building/community expenses.

The percentage charged by a lender for borrowing money, used to calculate interest portion of payments.

Loan-to-Value ratio. Loan amount divided by home value. Higher LTV often means higher risk and possibly PMI.

For ARMs, a fixed percentage added to the index to determine the fully-indexed interest rate.

The base mortgage payment excluding taxes/insurance/HOA/PMI.

Private Mortgage Insurance. Often required when down payment is less than 20% for conventional loans.

Optional upfront fees paid to a lender to reduce the interest rate. 1 point typically equals 1% of the loan amount.

The amount borrowed (or remaining loan balance). The principal portion of your payment reduces the balance.

Taxes assessed by local government based on property value; often paid through escrow.

The length of the loan, commonly 15 or 30 years.