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Mortgage Glossary

Buying a home comes with a whole new vocabulary. From escrow to amortization to LTV — we break down the most important mortgage terms in plain English so you can feel confident every step of the way.

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25 Mortgage Terms You Need to Know — Ryan Harding

Adjustable-Rate Mortgage

A mortgage with an interest rate that can change after an initial fixed period. Your payment may go up or down when it adjusts.

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Amortization

The schedule of how your loan is paid off over time through regular monthly payments — shifting from mostly interest to mostly principal.

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Appraisal

A professional opinion of a home's market value, required by the lender to make sure the loan amount is appropriate for the property.

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Balloon Payment

A large lump-sum payment due at the end of certain loan terms — often much larger than regular monthly payments.

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Closing Costs

Fees paid at the closing of a home purchase, beyond the down payment. They typically range from 2–5% of the loan amount.

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Contingency

A condition written into a purchase contract that must be met for the sale to move forward. If not met, the buyer can exit the deal.

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Credit Score

A number (usually 300–850) that measures how reliably you've repaid past debts. Higher scores unlock better mortgage rates and more loan options.

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Deed

The legal document that officially transfers ownership of a property from seller to buyer.

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Down Payment

The upfront cash you pay toward the purchase price. The rest is covered by your mortgage loan.

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Equity

The portion of your home's value that you actually own — the difference between what it's worth and what you still owe.

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Escrow

A neutral third-party account used to hold funds during a home purchase — or an ongoing account your lender manages for taxes and insurance.

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Fixed-Rate Mortgage

A mortgage with an interest rate that never changes. Your principal and interest payment stays the same for the entire loan term.

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Foreclosure

The legal process where a lender takes ownership of a home after the borrower stops making mortgage payments.

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Home Inspection

A professional evaluation of a home's condition — covering structure, systems, and safety — that helps buyers make informed decisions.

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Interest

The cost you pay to borrow money. Your lender charges interest as a percentage of your loan balance each month.

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Loan-to-Value Ratio

A percentage that compares your loan amount to the home's value. Lower LTV means more equity and better loan terms.

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Mortgage

A loan used to buy a home, where the home itself serves as collateral. If you stop making payments, the lender can take the home.

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Origination Fee

A fee charged by the lender to process and set up your mortgage. It's typically 0.5%–1% of the loan amount, paid at closing.

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Points / Discount Points

Upfront fees you pay to buy down your interest rate. One point equals 1% of the loan amount and typically lowers your rate by 0.25%.

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Pre-Approval

A lender's written commitment to lend you up to a specific amount, based on a review of your income, credit, and assets.

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Principal

The original amount you borrowed — not counting interest. When you make payments, part goes toward reducing your principal.

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Private Mortgage Insurance

Insurance that protects the lender (not you) when your down payment is less than 20%. It's added to your monthly payment until you reach enough equity.

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Refinance

Replacing your existing mortgage with a new one — often to get a lower interest rate, reduce your monthly payment, or access your home equity.

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Title Insurance

Insurance that protects you (and your lender) against ownership disputes or defects in the property's title history.

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Underwriting

The lender's process of verifying your income, credit, assets, and the property before approving your mortgage.

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Definitions are for educational purposes only and do not constitute financial or legal advice.