Every field has its jargon, and mortgages and home financing is worse than most. This glossary covers the 47 terms that come up again and again in our guides and in the questions readers send us. Definitions are short on purpose: enough to unblock you, with links to deeper guides throughout the site when you want the full story.

Adjustable Rate Mortgage (ARM)

A mortgage where the interest rate changes periodically after an initial fixed period. Your monthly payment may increase or decrease based on market conditions, making your costs less predictable over time.

Amortization

The process of paying off a loan through regular monthly payments over time. Each payment covers both interest and principal, gradually reducing what you owe.

Annual Percentage Rate (APR)

The yearly cost of a loan including interest and other fees, expressed as a percentage. It gives you a more complete picture of the true cost than interest rate alone.

Appraisal

A professional assessment of your home’s market value conducted by a licensed appraiser. Lenders require this to ensure the home is worth the amount you’re borrowing.

Assessed Value

The value assigned to your property by the local tax assessor for property tax purposes. This is different from market value and is used to calculate your annual tax bill.

Assumption

Taking over the existing mortgage from the previous homeowner instead of getting a new loan. This can save money on closing costs if the seller’s rate is favorable.

Balloon Payment

A large lump sum payment due at the end of a loan term. Some mortgages require this in addition to regular monthly payments.

Bridge Loan

A short-term loan that helps you buy a new home before selling your current one. It bridges the financial gap between the two transactions.

Closing

The final step in buying a home where you sign all documents, transfer funds, and receive the keys. This is when the property officially becomes yours.

Closing Costs

Fees and expenses paid at closing beyond the down payment, including title insurance, appraisal, and loan origination fees. These typically range from 2 to 5 percent of the loan amount.

Conforming Loan

A mortgage that meets the lending standards set by Fannie Mae and Freddie Mac. These loans are easier to get approved for and often have better rates than non-conforming loans.

Credit Score

A numerical rating between 300 and 850 that reflects your creditworthiness based on payment history and debt levels. Lenders use this to decide whether to approve your mortgage and what interest rate to offer.

Debt-to-Income Ratio

The percentage of your gross monthly income that goes toward debt payments. Lenders typically want this ratio below 43 percent to approve your mortgage.

Deed

A legal document that transfers ownership of the property to you. The deed is recorded with the local government to prove you own the home.

Default

Failing to make your mortgage payments as required by your loan agreement. This can lead to foreclosure and serious damage to your credit.

Deferred Interest

Interest that is not paid in the current period but added to the loan balance to be paid later. This typically occurs with certain ARM or interest-only loans.

Discount Points

Fees paid upfront to lower your mortgage interest rate, with each point costing 1 percent of the loan amount. Paying points reduces your monthly payment but increases upfront costs.

Down Payment

The money you pay upfront when buying a home, with the rest financed through a mortgage. Down payments typically range from 3 to 20 percent of the purchase price.

Earnest Money

A deposit you make when making an offer on a home to show you’re serious about buying. This money is held in escrow and applied to your down payment at closing.

Easement

The right of someone else to use a portion of your property, such as for utility lines or access. Easements are noted on your deed and don’t affect your ownership.

Equity

The portion of your home’s value that you actually own, calculated as the home’s value minus what you owe on the mortgage. Your equity grows as you pay down the loan.

Escrow

A neutral third party that holds money and documents during a real estate transaction to ensure both buyer and seller meet their obligations. Escrow protects everyone involved in the deal.

Fannie Mae

A government-sponsored enterprise that buys mortgages from lenders and sets lending standards. Most mortgages sold in the U.S. are backed by Fannie Mae or a similar agency.

Fixed Rate Mortgage

A mortgage where your interest rate stays the same for the entire loan term. Your monthly payment remains consistent, making budgeting predictable.

Foreclosure

The legal process where a lender takes back a home when the borrower stops making payments. This damages your credit and results in losing the home.

Freddie Mac

A government-sponsored enterprise that purchases mortgages from lenders and helps set industry standards. Most U.S. mortgages are purchased or guaranteed by Freddie Mac or Fannie Mae.

Good Faith Estimate

A document lenders must provide showing estimated closing costs within 3 days of your application. It helps you compare costs between different lenders.

Homeowners Insurance

Insurance that protects your home and belongings against damage from fire, theft, and natural disasters. Lenders require you to maintain this insurance to protect their investment.

Interest Rate

The percentage of the loan amount charged as the cost of borrowing, expressed annually. A lower interest rate means lower monthly payments and less total interest paid.

Jumbo Loan

A mortgage larger than the conforming loan limits set by Fannie Mae and Freddie Mac. These loans typically have stricter requirements and higher interest rates.

Lien

A legal claim against your property that must be paid off before the title transfers to someone else. Mortgages and property taxes create liens on your home.

Loan-to-Value Ratio (LTV)

The percentage of the home’s value that you’re borrowing, calculated as the loan amount divided by the home’s value. A lower LTV ratio means less risk for the lender.

Lock-In Rate

An agreement with your lender to hold a specific interest rate for a set period during the application process. This protects you from rate increases before closing.

Mortgage Broker

A professional who helps match borrowers with lenders and handles the loan application process. Brokers work with multiple lenders to find the best options for you.

Mortgage Insurance

Insurance that protects the lender if you default on your loan, typically required when your down payment is less than 20 percent. This cost is added to your monthly payment.

Non-Conforming Loan

A mortgage that doesn’t meet the standards set by Fannie Mae and Freddie Mac. These loans are harder to get and usually have higher interest rates.

Origination Fee

A charge from the lender for processing and underwriting your mortgage application. This fee typically ranges from 0.5 to 1.5 percent of the loan amount.

PMI

Private mortgage insurance that lenders require when you put down less than 20 percent on a conventional loan. You can request removal once your equity reaches 20 percent.

Pre-Approval

A lender’s conditional agreement to finance up to a specific amount based on your financial information. Getting pre-approved strengthens your offer when shopping for homes.

Pre-Qualification

An informal estimate of how much you might be able to borrow based on basic financial information you provide. This is less rigorous than pre-approval.

Principal

The original amount of money you borrow, separate from interest charges. Your principal balance decreases with each monthly payment.

Property Tax

An annual tax based on your property’s assessed value, paid to your local government. These taxes fund schools, infrastructure, and public services in your area.

Rate Lock

A guarantee that your interest rate won’t change during a specific period, typically 30 to 60 days. Rate locks protect you from market increases before closing.

Refinance

Replacing your current mortgage with a new loan, usually to get a lower interest rate or change loan terms. Refinancing involves new closing costs and a new application process.

Title Insurance

Insurance that protects you and your lender against financial loss from disputes over property ownership. Most lenders require a title policy before releasing mortgage funds.

Underwriting

The process where a lender reviews your application, verifies your information, and decides whether to approve the loan. Underwriting typically takes several days to weeks.

VA Loan

A mortgage program for military veterans that requires no down payment and offers favorable terms. These loans are backed by the Department of Veterans Affairs.