Mortgage glossary

Adjustable-Rate Mortgage (ARM)

A mortgage whose rate is fixed for an initial period and then adjusts periodically against an index, within defined caps.

Amortization

The schedule by which a loan is paid off over time. Early payments are mostly interest; later payments are mostly principal.

Annual Percentage Rate (APR)

The cost of borrowing expressed as a yearly rate, including certain fees as well as interest. It exists to make loans with different fee structures comparable.

Appraisal

An independent opinion of a property's market value, ordered by the lender to confirm the collateral supports the loan.

Cash-Out Refinance

Replacing your mortgage with a larger one and taking the difference in cash. The entire balance is repriced, not just the new money.

Closing Costs

The total of lender fees, third-party fees, and prepaid items due at closing.

Debt-to-Income Ratio (DTI)

Monthly debt payments divided by gross monthly income. Usually the binding constraint on loan size.

DSCR

Debt Service Coverage Ratio. Compares a rental property's income to its debt payment, allowing an investor to qualify on the property rather than on personal income.

Equity

The difference between what your home is worth and what you owe against it.

Escrow

An account held by the servicer that collects and pays property taxes and insurance on your behalf, spread across monthly payments.

HELOAN

A fixed-rate home equity loan, funded as a lump sum with a fixed payment. A second mortgage, not a line.

HELOC

Home Equity Line of Credit. A revolving second lien you can draw against, repay, and draw again during the draw period.

Loan Estimate

A standardized three-page disclosure of your loan's terms and costs, issued within three business days of application. Designed to be compared side by side.

Loan-to-Value (LTV)

The loan amount as a percentage of the property's value. A primary driver of both pricing and program eligibility.

Mortgage Insurance

Coverage protecting the lender against default, generally required when the down payment is under 20%. Removable on conventional loans; permanent on most FHA loans.

Non-QM

A loan outside the Qualified Mortgage guidelines. A different documentation standard, not a lower-quality borrower.

Origination Fee

A lender charge for processing the loan, usually expressed as a percentage.

Points

Prepaid interest paid at closing to reduce the rate. One point equals one percent of the loan amount.

Principal

The amount borrowed, separate from the interest charged on it.

Rate Lock

A commitment holding your rate for a set period while the loan is processed, protecting you from movement during that window.

Rate-and-Term Refinance

Replacing your mortgage to change the rate or term without taking meaningful cash out.

Title Insurance

Protection against defects in the property's ownership history, such as undisclosed liens or errors in the public record.

Underwriting

The lender's review of your credit, income, assets, and the property to decide whether the loan meets guidelines.

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