Use this glossary of mortgage terms to better understand the overall mortgage process as well as any specific mortgage terms that may be unfamiliar to you.
1. Amortization: The process of paying off a mortgage loan over time through regular payments.
2. APR (Annual Percentage Rate): The annual cost of a loan, including interest and fees, expressed as a percentage.
3. Closing Costs: The fees and expenses associated with finalizing a mortgage loan, including appraisal fees, title insurance, and attorney fees.
4. Collateral: Property or assets that are used to secure a loan, such as a house in the case of a mortgage.
5. DTI (Debt-to-Income Ratio): The ratio of a borrower's monthly debt payments to their gross monthly income, used by lenders to assess a borrower's ability to repay a loan.
6. Escrow: Money held in a separate account by a third party to cover future expenses such as property taxes and insurance.
7. Fixed-Rate Mortgage: A mortgage with an interest rate that remains constant throughout the life of the loan.
8. Foreclosure: The legal process in which a lender repossesses a property due to the borrower's failure to make mortgage payments.
9. Lien: A legal claim on a property as security for a debt or obligation.
10. PMI (Private Mortgage Insurance): Insurance that protects the lender in case the borrower defaults on the loan.
11. Pre-Approval: A process in which a lender evaluates a borrower's financial information to determine the maximum amount they can borrow.
12. Principal: The amount of money borrowed for a mortgage, excluding interest.
13. Refinance: The process of replacing an existing mortgage with a new loan, often to take advantage of lower interest rates or to access equity in the property.
14. Title: The legal document that shows ownership of a property.
15. Underwriting: The process by which a lender evaluates a borrower's creditworthiness and the risk of lending to them.
16. Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that can change over time based on market conditions.
17. Appraisal: An estimate of a property's value, conducted by a licensed appraiser.
18. Closing Disclosure: A document that outlines the final terms and costs of a mortgage loan, provided to the borrower before closing.
19. Equity: The value of a property minus the amount owed on a mortgage.
20. HARP (Home Affordable Refinance Program): A program designed to help homeowners refinance their mortgages, particularly if they owe more than the property is worth.
21. Jumbo Loan: A mortgage that exceeds the conforming loan limits set by government-sponsored entities such as Fannie Mae and Freddie Mac.
22. Origination Fee: A fee charged by a lender for processing a new loan application.
23. Second Mortgage: A mortgage taken out on a property that already has an existing mortgage, often used to access the equity in the property.
24. Title Insurance: Insurance that protects the lender and the borrower against any defects in the title of a property.
25. USDA Loan: A mortgage guaranteed by the U.S. Department of Agriculture, designed to help low- and moderate-income borrowers in rural areas.