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Glossary of mortgage terms
Plain-language explanations for common terms you will see while shopping for a loan.
- Amortization
- Paying down a loan through scheduled payments over its term.
- Appraisal
- An independent opinion of a property’s value used in a loan review.
- APR
- Annual percentage rate. A measure that reflects interest plus certain loan costs.
- Closing costs
- Fees and prepaid items due in connection with the loan and property transaction.
- Debt-to-income ratio (DTI)
- Monthly debt payments divided by gross monthly income, expressed as a percentage.
- Down payment
- The part of the purchase price you pay upfront, apart from the mortgage.
- Earnest money
- A deposit a buyer makes after signing a purchase agreement, handled under the contract’s terms.
- Equity
- The estimated property value minus the amount owed against it.
- Escrow
- An account used by the lender or servicer to collect and pay eligible taxes and insurance.
- Interest rate
- The rate used to calculate interest charged on the outstanding loan balance.
- Loan Estimate
- A standardized form with estimated loan terms, payments, and closing costs.
- Loan-to-value (LTV)
- The loan amount divided by the property value used for the transaction.
- Mortgage insurance
- Coverage that protects the lender on certain loans, often when the down payment is smaller.
- Points
- Upfront fees that can be paid to change the interest rate. One point equals one percent of the loan amount.
- Preapproval
- A lender's preliminary review of finances, subject to conditions and final underwriting.
- Principal
- The loan amount owed, excluding interest and other charges.
- Rate lock
- An agreement to hold a specified interest rate for a set period, subject to its terms.