Mortgage Glossary

Mortgage Glossary

Understanding mortgage terminology is essential for navigating the complex world of home financing. Below, you'll find a comprehensive list of key terms and definitions to help you make informed decisions throughout your mortgage journey. Use tools like our mortgage calculator or closing cost calculator to better understand the financial aspects of these terms.

Acceleration Clause

A provision in a mortgage that allows the lender to demand immediate repayment of the entire loan balance if a borrower misses a payment or violates other terms of the agreement.

Additional Principal Payment

An extra payment made toward the loan’s principal, helping to reduce the loan balance faster and save on interest costs.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on an index. Often referred to as ARMs, these are one of the many mortgage types borrowers can consider.

Adjusted Basis

The original cost of a property plus any improvements made, minus depreciation. This is used to calculate capital gains for tax purposes.

Balance Sheet

A financial document detailing an individual’s or company’s assets, liabilities, and net worth as of a specific date.

Balloon Mortgage

A type of loan with smaller monthly payments and a large lump-sum payment due at the end of the term. Use our mortgage loan calculator to see how this compares with other loans.

Bridge Loan

Short-term financing used to bridge the gap between buying a new home and selling an existing one.

Closing Costs

Expenses paid during the finalization of a property purchase, including loan origination fees, appraisal costs, title insurance, taxes, and more. Use a closing cost calculator to estimate these costs.

Credit Report

A detailed summary of an individual’s credit history, used by lenders to assess creditworthiness.

Compound Interest

Interest calculated on both the initial principal and the accrued interest from previous periods.

Deed of Trust

A legal document transferring the title of a property to a trustee as security for a loan.

Down Payment

The upfront cash payment made toward the purchase price of a property. It reduces the financed amount and can influence mortgage loan rates.

Discount Points

Fees paid to the lender at closing to reduce the loan's interest rate. One point equals 1% of the mortgage amount, which can lower your estimated monthly mortgage payment over time.

Equity

The difference between a property’s market value and the remaining mortgage balance.

Escrow

Funds held by a third party to ensure payment of property taxes, insurance, or other expenses related to the home purchase.

Effective Gross Income

A borrower’s annual income, including overtime and bonuses if consistent and stable.

Fannie Mae

A government-sponsored entity providing liquidity to the mortgage market by purchasing loans from lenders.

Fixed-Rate Mortgage (FRM)

A loan with an interest rate that remains constant throughout the life of the loan, offering predictable mortgage payments.

FICO® Score

A credit score ranging from 300 to 850 that reflects an individual’s creditworthiness. Higher scores typically lead to better mortgage interest rates.

Good Faith Estimate (GFE)

A document outlining the estimated costs of a mortgage loan, including closing costs and mortgage loan rates.

Government-Backed Loan

A mortgage loan insured or guaranteed by a government agency, such as FHA, VA, or USDA loans.

Grace Period

The period after a payment due date during which no late fees are charged, and the loan remains in good standing.

Graduated Payment Mortgage (GPM)

A mortgage with lower initial payments that increase over time.

Home Equity Line of Credit (HELOC)

A revolving line of credit secured by the equity in a borrower’s home, often used for home improvements or other major expenses.

Housing Ratio

Also known as the Front-End Ratio, it’s the percentage of a borrower’s gross monthly income used to cover house loans, property taxes, and insurance.

Impound Account

An escrow account established by the lender to collect and hold funds for property taxes and homeowner’s insurance.

Interest Rate

The percentage of the loan amount charged by the lender as a cost of borrowing. It impacts your calculate monthly mortgage payment calculations.

Interest-Only Loan

A mortgage where the borrower pays only the interest for a set period, with no reduction in the principal balance during that time.

Jumbo Loan

A mortgage loan that exceeds conforming loan limits, often requiring higher credit scores and offering higher mortgage interest rates.

Loan-To-Value Ratio (LTV)

The percentage of a property’s value financed by a mortgage. Lenders use this ratio to assess risk.

Mortgage Calculator

An online tool to estimate your mortgage payment based on loan terms, interest rates, and property costs.

Private Mortgage Insurance (PMI)

Insurance required for most conventional loans with down payments less than 20%.

Refinancing

The process of replacing an existing loan with a new one to secure lowest refinance home loan rates or better terms.

VA Loan

A mortgage guaranteed by the U.S. Department of Veterans Affairs. VA loans often require no down payment.

Verification of Employment (VOE)

The process of confirming a borrower’s employment status and income to determine their ability to repay the loan.

Variable Rate

An interest rate that can change over time based on market conditions, often tied to a benchmark index.

Verification of Deposit (VOD)

A document that verifies a borrower’s account balance and financial history.

Walkthrough

A final inspection of a property by the buyer before closing to ensure the property is in the agreed-upon condition.

Warranty Deed

A legal document guaranteeing that the seller owns the property and has the right to transfer ownership to the buyer.

Yield Spread Premium (YSP)

A payment made by a lender to a mortgage broker for originating a loan with an interest rate higher than the lender’s par rate.

Zero Down Payment

A mortgage option that allows borrowers to purchase a home without a down payment, often available through VA or USDA loans.

Zoning

Local government regulations that dictate how a property can be used, such as residential, commercial, or industrial purposes.