Glossary

Mortgage terms in everyday words

The words you will meet on a Loan Estimate, in your loan documents and at closing, explained in plain English. Pick a letter to jump to it.

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Common terms

A few that come up on every loan.

Annual percentage rate (APR)
Closing Disclosure
Loan Estimate
Points

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Fidelity Residential · NMLS #103098 · Equal Housing Lender

A to W

Mortgage terms

Definitions are general. Your own loan documents set the terms of your loan.

A

Acceleration: The lender's right to demand the whole remaining balance at once if the borrower defaults, or if the home is sold when the mortgage has a due-on-sale clause.
Adjustable-rate mortgage (ARM): A mortgage whose rate is fixed for a set number of years and then can change at set times, based on a published index plus a margin, within limits called caps. Sometimes called a variable-rate mortgage. See adjustable rate loans.
Adjustment period: On an adjustable-rate mortgage, how often the rate can change once the fixed period ends. It is set in your loan documents.
Amortization: Paying off a loan with regular payments that cover the interest due and part of the balance, so the loan is paid in full by the end of its term.
Annual percentage rate (APR): The yearly cost of a loan, including the interest rate and certain fees, shown as one rate. It is usually higher than the note rate and helps you compare loans of the same type and length. Lenders must show it on the Loan Estimate.
Appraisal: An estimate of a home's market value by a licensed or certified appraiser.
Assessment: A local charge on a property for a specific purpose, such as sewers or street lights.
Assumption: When a buyer takes over the seller's existing mortgage. Only some loans allow it, and the lender must usually approve the buyer.

B

Balloon payment: A large final payment that repays the remaining balance at the end of a loan whose regular payments did not pay it off.
Blanket mortgage: One mortgage secured by two or more properties.
Borrower (mortgagor): The person who takes out the loan and promises to repay it.
Broker: A licensed company or person who arranges a loan with a lender but does not make the loan itself. Brokers are paid a fee or a commission, shown on your Loan Estimate.
Buydown: Money paid, often by a seller or builder, to lower the borrower's interest rate. A temporary buydown lowers it for the first years only, so the payment rises when it ends.

C

Caps: Limits on how much the rate on an adjustable-rate mortgage can change at each adjustment and over the life of the loan. Some loans also cap how much the payment can change.
Cash flow: The money a rental property brings in after its expenses, such as the mortgage payment, taxes, insurance and upkeep.
Certificate of Eligibility: The document from the Department of Veterans Affairs that shows a veteran or service member can use the VA home loan benefit. A lender can usually request it for you.
Closing (settlement): The meeting where the loan documents are signed and the money and ownership change hands. See our guide to closing.
Closing costs: The fees and charges paid at closing, such as lender fees, the appraisal, title insurance, recording fees and prepaid items. They are listed on your Loan Estimate and Closing Disclosure. See our guide to closing.
Closing Disclosure: The form that shows the final terms and costs of your loan. You receive it before closing so you can compare it with your Loan Estimate.
Commitment: A lender's written promise to make a loan on stated terms, once the listed conditions are met.
Conforming loan: A loan that meets Fannie Mae or Freddie Mac rules, including a maximum loan amount set each year for each county.
Construction loan: A short-term loan that pays for building or renovating, paid out in stages as the work is done.
Contract for deed: A sale in which the buyer pays the seller in installments and receives the deed only after the conditions are met.
Credit report: A record of your borrowing and repayment history from a credit bureau.
Credit score: A number calculated from your credit report that predicts how likely you are to repay. See understanding your credit.

D

Debt-to-income ratio: Your monthly debt payments, including the new housing payment, divided by your gross monthly income.
Deed: The document that transfers ownership of a property.
Deed of trust: In some states, the document used instead of a mortgage to pledge the home as security for the loan.
Default: Failing to meet the terms of the loan, most often by missing payments.
Deferred interest: Interest that is not paid each month and is added to the loan balance instead. See negative amortization.
Delinquency: Being late with a payment. A long delinquency can lead to foreclosure.
Department of Veterans Affairs (VA): The federal agency that partly guarantees VA home loans made by private lenders to eligible veterans, service members and certain surviving spouses.
Discount points: See points.
Down payment: The part of the purchase price you pay yourself, rather than borrow.
Due-on-sale clause: A clause that lets the lender demand full repayment if the home is sold or transferred.

E

Earnest money: A deposit a buyer makes with an offer to show good faith. It is usually applied to the down payment or closing costs.
Entitlement: The amount of the VA home loan benefit a veteran has available.
Equal Credit Opportunity Act: A federal law that bars lenders from discriminating on the basis of race, color, religion, national origin, sex, marital status or age, because income comes from public assistance, or because a person exercised their rights under consumer credit law.
Equity: The difference between what your home is worth and what you owe on it.
Escrow account (impound account): An account your loan servicer holds to pay property taxes and insurance for you. Part of each monthly payment goes into it.

F

Fannie Mae: The Federal National Mortgage Association, a government-sponsored company that buys mortgages from lenders and sets the rules conforming loans follow.
FHA: The Federal Housing Administration, part of the Department of Housing and Urban Development (HUD). It insures loans made by private lenders.
FHA loan: A loan made by a private lender and insured by the FHA. FHA loans accept smaller down payments and lower credit scores than most conventional loans, and the home must be your main residence. See FHA loans.
FHA mortgage insurance premium (MIP): The insurance an FHA borrower pays: an upfront premium, usually added to the loan, and an annual premium paid monthly.
Fixed-rate mortgage: A mortgage whose interest rate stays the same for the life of the loan. See fixed rate loans.
Foreclosure: The legal process a lender uses to take and sell a property when the borrower does not repay.
Freddie Mac: The Federal Home Loan Mortgage Corporation, a government-sponsored company that, like Fannie Mae, buys mortgages and sets rules for conforming loans.

G

Ginnie Mae: The Government National Mortgage Association. It guarantees securities backed by FHA, VA and USDA loans.
Graduated payment mortgage: A loan whose payments start low and rise over the early years. Early payments may not cover all the interest.
Guaranty: A promise by one party to repay a debt if the borrower does not.

H

Hazard insurance (homeowners insurance): Insurance that covers damage to the home from fire, wind and other listed causes. Lenders require it.
Housing expense ratio: Your monthly housing payment divided by your gross monthly income.

I

Index: A published interest rate that an adjustable-rate mortgage follows. The new rate is the index plus the margin, within the caps.
Interest-only period: A set time at the start of some loans when the payment covers only interest. When it ends, the payment rises to repay the balance.
Investor: A company that buys loans from lenders or funds them.

J

Jumbo loan: A loan larger than the conforming limit set each year for the county. Each jumbo program sets its own rules. See jumbo loans.

L

Lien: A legal claim on a property as security for a debt.
Loan Estimate: The form a lender gives you after you apply, showing the estimated rate, payment and closing costs, so you can compare offers.
Loan-to-value ratio: The loan amount divided by the home's appraised value or price, whichever is lower.

M

Margin: The amount added to the index to set the rate on an adjustable-rate mortgage. It is set in your loan documents and does not change.
Market value: The price a willing buyer and a willing seller would likely agree on.
Mortgage: The document that pledges a home as security for a loan. The word is also used for the loan itself.
Mortgage insurance: Insurance that protects the lender if a borrower stops paying. It is usually required with a smaller down payment. See private mortgage insurance and FHA mortgage insurance premium.
Mortgagee: The lender.
Mortgagor: The borrower.

N

Negative amortization: When the payment does not cover all the interest due, so the unpaid interest is added to the balance and you can end up owing more than you borrowed.
Non-conforming loan: A loan that does not meet Fannie Mae or Freddie Mac rules, for example because it is larger than the conforming limit or documents income another way.
Note: Your signed promise to repay the loan, with its rate, payment and terms.

O

Origination fee: A fee a lender or broker charges for arranging and processing a loan. It is shown on your Loan Estimate.

P

PITI: Principal, interest, taxes and insurance: the parts of a typical monthly mortgage payment.
Points: A fee paid at closing to lower the interest rate. One point is one percent of the loan amount. See should I consider paying points?
Power of attorney: A legal document that lets another person sign for you.
Prepaid items: Costs paid at closing ahead of when they come due, such as interest to the end of the month, the first year of homeowners insurance and deposits to the escrow account.
Prepayment: Paying more than the scheduled payment, or paying the loan off early.
Prepayment penalty: A charge for paying off a loan early. Many home loans have none; some, such as many investor loans, do where the law allows one.
Primary and secondary mortgage markets: The primary market is where lenders make loans to borrowers. The secondary market is where loans are sold to companies such as Fannie Mae and Freddie Mac, which frees lenders to make new loans.
Principal: The amount you still owe on the loan, not counting interest.
Private mortgage insurance (PMI): Mortgage insurance on a conventional loan, usually required with a smaller down payment. It can be removed later; see can I get rid of PMI?

R

Rate lock: A lender's commitment to hold an interest rate and price for a set time while your loan is completed. See our rate lock policy.
Recording fees: Fees charged by the local government to record the deed and mortgage in the public records.
Refinance: Replacing your current mortgage with a new one. See refinancing.
RESPA: The Real Estate Settlement Procedures Act, a federal law about the costs and process of closing a home loan, including disclosures and limits on certain fees.
Reverse mortgage: A loan for older homeowners that turns part of their home equity into cash without monthly mortgage payments; the loan is repaid when the home is sold or no longer the main residence. Taxes, insurance and upkeep must still be paid.
Right of rescission: Your right to cancel certain refinances and home equity loans on your main home within a short time after signing, set by federal law. The loan money is not paid out until that time has passed.

S

Satisfaction of mortgage: The document showing a mortgage has been paid in full. Also called a release.
Second mortgage: A loan that sits behind the first mortgage on the same home, such as a home equity loan or line of credit.
Servicer: The company that collects your payments and manages your escrow account. It may change during the loan; you are told in writing when it does.
Shared appreciation mortgage: A loan in which a lender or another party receives part of the home's future increase in value in exchange for a benefit at the start, such as a lower rate.
Simple interest: Interest charged only on the principal balance.
Survey: A map of the property by a licensed surveyor showing its boundaries and buildings.
Sweat equity: Value a buyer adds to a home by doing work on it themselves.

T

Title: Legal ownership of a property.
Title insurance: Insurance against loss from problems with the title that the search missed. A lender's policy protects the lender; an owner's policy protects you.
Title search: A review of public records to confirm who owns the property and whether there are liens or other claims on it.
Truth in Lending Act: A federal law that requires lenders to disclose the cost of credit, including the APR, so you can compare loans. Its rules are known as Regulation Z.

U

Underwriting: The lender's review of your credit, income, assets and the property to decide whether to make the loan and on what terms.
USDA loan: A loan guaranteed by the U.S. Department of Agriculture for low- and moderate-income households buying a modest home in an area USDA maps as rural. See USDA loans.
Usury: Charging interest above the maximum the law allows.

V

VA funding fee: A one-time fee most VA borrowers pay, which can be added to the loan. Veterans receiving compensation for a service-connected disability, and some others, are exempt.
VA loan: A loan made by a private lender and partly guaranteed by the Department of Veterans Affairs, for eligible veterans, service members and certain surviving spouses. See VA loans.
Verification of deposit (VOD): A form your bank completes to confirm your account balances.
Verification of employment (VOE): A form or call in which your employer confirms your job and income.

W

Wraparound mortgage: A new loan that includes an existing loan on the property; the borrower pays the new lender, who keeps paying the original loan.

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This page is general information, not a commitment to lend. Programs, terms and eligibility depend on credit, income, property and underwriting review and are subject to change without notice.