Mortgage Glossary — A to Z

A mortgage with an interest rate that's fixed for an initial period — commonly 5, 7, or 10 years — and then adjusts periodically based on a market index. See our full Fixed vs ARM guide.

The process of paying off a loan through regular instalments over time, where each payment covers both interest and principal. In the early years of a mortgage, payments are weighted heavily toward interest; later payments shift toward principal.

A broader measure of borrowing cost than the interest rate alone — it includes the interest rate plus certain lender fees (origination fees, points, some closing costs). Always equal to or higher than the interest rate. The most accurate figure to use when comparing loan offers.

An independent professional assessment of a property's market value, ordered by the lender. If the appraised value comes in below the purchase price, the lender will only lend against the appraised value.

The percentage of your gross monthly income consumed by all monthly debt obligations — housing costs plus car payments, student loans, credit cards, and other debt. Most lenders prefer this below 43%.

The point at which your monthly savings from refinancing exceed what you paid in closing costs. Calculated as: closing costs ÷ monthly savings = months to break even.

Refinancing for more than you currently owe and taking the difference in cash, increasing your loan balance. Commonly used for home improvements or debt consolidation.

Fees paid at the finalisation of a mortgage, typically 2% to 5% of the loan amount. Includes origination fees, appraisal fees, title insurance, and other transaction costs. Source: CFPB.

A standardised document lenders must provide at least three business days before closing, detailing the final terms and costs of your loan.

A mortgage not insured or guaranteed by a government agency (FHA, VA, USDA). Conforms to guidelines set by Fannie Mae and Freddie Mac.

A three-digit number (typically a FICO score, ranging 300–850) summarising your credit history. The single biggest personal factor in the mortgage rate you're offered.

The percentage of your gross monthly income that goes toward debt payments. See front-end DTI and back-end DTI for the two variants lenders calculate.

The portion of the purchase price you pay upfront in cash, rather than financing. Minimums range from 0% (VA, USDA) to 3.5% (FHA) to 20%+ (to avoid PMI on conventional loans).

A deposit (typically 1–3% of the purchase price) submitted with an offer to show the seller you're serious, held in escrow until closing.

The portion of your home's value that you actually own — calculated as current market value minus your remaining mortgage balance.

A separate account managed by your lender into which a portion of your monthly payment is deposited to cover property taxes and homeowners insurance, paid on your behalf when due.

A mortgage insured by the Federal Housing Administration, allowing down payments as low as 3.5% with more flexible credit requirements than conventional loans. See our full FHA loan guide.

A mortgage where the interest rate is locked for the entire loan term, providing a monthly payment that never changes. See our full fixed-rate guide.

The percentage of your gross monthly income consumed specifically by housing costs — principal, interest, taxes, insurance, and HOA fees if applicable.

A mortgage exceeding the conforming loan limits set by the Federal Housing Finance Agency. Typically requires higher credit scores and larger down payments.

A standardised document lenders must provide within three business days of application, detailing estimated rate, payments, and closing costs.

Your loan amount expressed as a percentage of the home's value. An 80% LTV means a 20% down payment. Lower LTV typically means a better rate and avoiding PMI.

Mortgage insurance required on FHA loans, consisting of an upfront premium (1.75% of the loan) and an annual premium. Unlike conventional PMI, MIP often lasts the life of the loan if the down payment was below 10%.

An upfront fee paid to reduce your interest rate. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.

A fee charged by the lender for processing a new loan application, typically 0.5% to 1% of the loan amount.

A formal lender assessment of your credit, income, and assets resulting in a conditional commitment to lend up to a specific amount. More substantial than pre-qualification.

An informal, preliminary estimate of what you might be able to borrow, based on self-reported information with no credit check or document verification.

The amount you actually borrow, excluding interest. Every mortgage payment reduces the principal balance, though slowly at first under amortisation.

Insurance required on conventional loans when the down payment is below 20% (LTV above 80%). Protects the lender, not the borrower. Cancellable once LTV reaches 80%.

A lender's commitment to honour a specific interest rate for a set period (typically 30–60 days) between application and closing, protecting you from rate increases during that window.

Replacing an existing mortgage with a new one — usually to secure a lower rate, change the term, or access equity in cash. See our full refinancing guide.

A simplified refinance program available on existing FHA or VA loans, with reduced documentation requirements compared to a standard refinance.

Insurance protecting against claims or disputes over property ownership. Lenders typically require a lender's title policy; buyers often purchase an owner's policy as well.