Mortgage glossary
Plain-English definitions of the terms you will see on a Loan Estimate and at closing.
Amortization
Paying off a loan with regular payments that cover interest and part of the principal.
Annual percentage rate (APR)
The yearly cost of the loan including interest and certain fees, shown as a percentage. Useful for comparing offers.
Appraisal
An independent estimate of a home's value, ordered by the lender.
Closing costs
Fees and prepaid items due at closing, such as lender fees, title, appraisal and escrow deposits.
Closing Disclosure
A form you receive before closing showing the final loan terms and costs.
Debt-to-income ratio (DTI)
Your monthly debt payments divided by your gross monthly income.
Down payment
The part of the price you pay upfront in cash.
Equity
Your home's value minus what you owe on it.
Escrow
An account the servicer uses to pay property taxes and insurance on your behalf.
Loan Estimate
A standard three-page form lenders give after you apply, showing estimated rate, payment and costs. Use it to compare lenders.
Loan-to-value (LTV)
Your loan amount divided by the home's value.
Mortgage insurance
Insurance that protects the lender if you stop paying. Called PMI on conventional loans and MIP on FHA loans.
Points
Optional fees paid at closing to lower your interest rate.
Pre-approval
A lender's conditional commitment after reviewing your credit, income and assets.
Pre-qualification
An informal estimate of what you may borrow, usually based on information you provide.
Rate lock
A lender's promise to hold an interest rate for a set period.