Buying a home is one of life’s biggest milestones — but navigating the mortgage process can feel like learning a new language.
APR? Escrow? Amortization?
If you’ve ever felt lost in the jargon, you’re not alone.
That’s why we created this Mortgage Terms 101 Glossary — a simple, plain-English guide to help you understand the key terms every homebuyer should know.
📘 A
Amortization
The process of gradually paying off your loan through regular payments that include both principal and interest. Early payments mostly cover interest, while later ones pay down more principal.
Annual Percentage Rate (APR)
The true cost of borrowing, including interest and lender fees. The APR gives you a more accurate picture of what your loan will cost over time.
Appraisal
An unbiased estimate of a home’s market value, conducted by a licensed appraiser to ensure the property is worth the amount you’re borrowing.
Adjustable-Rate Mortgage (ARM)
A loan with an interest rate that changes periodically based on market conditions. ARMs often start with a low “intro” rate that may increase later.
💵 B
Balloon Payment
A large, one-time payment due at the end of certain mortgage types. Usually associated with shorter-term or interest-only loans.
Borrower
The person (or people) taking out the mortgage loan.
Bridge Loan
A short-term loan that helps you “bridge” the gap between buying a new home and selling your current one.
🏦 C
Closing Costs
Fees you pay when finalizing a home purchase or refinance. These may include appraisal fees, title insurance, and taxes — typically 2–5% of the loan amount.
Collateral
Property pledged as security for a loan. In this case, your home is the collateral for your mortgage.
Conventional Loan
A mortgage not insured by the federal government (unlike FHA, VA, or USDA loans).
Credit Score
A numerical rating (usually 300–850) that reflects your creditworthiness. Higher scores generally mean better loan terms.
💰 D
Debt-to-Income Ratio (DTI)
A measure of how much of your monthly income goes toward debt payments. Lenders use this to assess your ability to manage mortgage payments.
Down Payment
The upfront amount you pay toward the purchase of your home. Typically ranges from 3% to 20% of the purchase price.
Discount Points
Optional upfront fees paid to the lender to reduce your interest rate. One point usually equals 1% of the loan amount.
🏡 E
Earnest Money
A deposit made by the buyer to show good faith when making an offer. It’s usually applied to closing costs or the down payment.
Equity
The portion of your home that you truly own — calculated as your home’s market value minus the remaining loan balance.
Escrow
A neutral third party that holds funds (like your down payment or property taxes) until all conditions of a sale are met.
📄 F
Fixed-Rate Mortgage
A loan with an interest rate that stays the same for the entire term, providing predictable monthly payments.
Foreclosure
The legal process through which a lender takes possession of a property when the borrower fails to make payments.
FHA Loan
A government-backed mortgage insured by the Federal Housing Administration, often ideal for first-time buyers with lower credit scores.
🧾 H
Home Equity
The difference between your home’s market value and what you owe on your mortgage.
Home Inspection
A detailed evaluation of a property’s condition by a certified inspector, helping buyers identify potential issues before closing.
Homeowners Insurance
Coverage that protects your property and belongings from damage or loss. Most lenders require it as a condition of your loan.
🧮 I
Interest Rate
The percentage charged by the lender on the amount you borrow. It determines how much you’ll pay in addition to the principal.
Interest-Only Loan
A mortgage that allows you to pay only interest for a set period before you start paying down the principal.
💳 L
Loan Estimate (LE)
A document from your lender outlining your loan’s key terms, interest rate, monthly payment, and closing costs.
Loan-to-Value Ratio (LTV)
The percentage of your home’s value that you’re borrowing. For example, a $300,000 home with a $240,000 loan has an LTV of 80%.
Lender
The financial institution or individual who provides the loan funds.
🏘️ M
Mortgage
A legal agreement where a lender provides money to buy property, and you agree to repay it over time with interest.
Mortgage Insurance (PMI/MIP)
Protection for the lender in case you default. PMI applies to conventional loans; MIP applies to FHA loans.
Mortgage Term
The length of your loan — typically 15, 20, or 30 years.
📊 P
Principal
The amount of money you originally borrowed to buy your home (not including interest).
Pre-Approval
A lender’s written commitment showing how much you can borrow, based on your financial profile. Stronger than pre-qualification.
Property Taxes
Local taxes based on your home’s assessed value, usually paid through your escrow account.
🧾 R
Refinancing
Replacing your existing mortgage with a new one, often to get a lower interest rate, shorter term, or access home equity.
Rate Lock
An agreement that guarantees a specific interest rate for a set period (usually 30–60 days) while your loan is processed.
🏁 T
Title
Legal documentation that proves ownership of the property.
Title Insurance
Protects against potential legal disputes over property ownership.
Truth in Lending Act (TILA)
A federal law that requires lenders to clearly disclose loan terms and costs to borrowers.
🧭 Final Thoughts
Understanding mortgage terminology can make the homebuying process far less intimidating.
When you know what each term means, you’re better equipped to compare lenders, negotiate confidently, and make smart financial decisions.
Buying a home is exciting — and with the right knowledge, you’ll step into it feeling informed and empowered.