Common Mortgage Terms

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage (ARM) is a type of loan where the interest rate can change over time, usually based on an index. Your monthly payment may go up or down depending on the loan’s introductory period, rate caps, and market conditions.

Example: A 5/1 ARM has a fixed rate for the first 5 years, then adjusts once per year thereafter.

Amortization

Amortization is the process of paying off a loan with regular payments over time. With each payment, your loan balance decreases. Some loans may not fully amortize, which could result in a remaining balance or a balloon payment.

Annual Percentage Rate (APR)

APR is a broader measure of the cost of borrowing than the interest rate. It includes the interest rate, points, broker fees, and other charges associated with the loan.

Appraisal Fee

The cost of having a professional appraisal completed to determine the value of a property.

Closing Disclosure

A five-page document that outlines the final terms of your loan, including monthly payments and closing costs.

Construction Loan

A short-term loan used to finance the building or renovation of a home.

Conventional Loan

A mortgage that is not insured or guaranteed by the government.

Debt-to-Income Ratio (DTI)

Your total monthly debt payments divided by your gross monthly income. Lenders use this to assess your ability to repay a loan.

Down Payment

The upfront amount you pay toward the purchase of a home. A larger down payment can improve loan approval chances and lower your interest rate.

Down Payment Assistance

Programs or grants that help buyers cover some or all of their down payment costs.

Earnest Money

A deposit made to show good faith when entering a contract to purchase a home.

Escrow

An account set up by your lender to pay property taxes and insurance. A portion of your monthly payment goes into this account.

FHA Loan

A government-backed loan that allows for lower credit scores and down payments.

FHA Funding Fee

An upfront and/or monthly insurance premium required for FHA loans.

FHA Loan Limits

The maximum loan amount FHA will insure, which varies by location.

Government Recording Charges

Fees charged by local governments to officially record your mortgage and property documents.

HOA Dues

Fees paid to a homeowners association for community maintenance. These are not included in your mortgage payment.

Home Inspection

An evaluation of a home’s condition, including structure and systems.

Lender’s Title Insurance

Protects the lender against title issues or ownership disputes.

Loan-to-Value Ratio (LTV)

The ratio of your loan amount to the property’s value. A lower LTV often means lower risk to the lender.

Mortgage Closing Costs

All costs associated with finalizing a mortgage, including fees for services and processing.

Mortgage Insurance

Insurance that protects the lender if you default on your loan. Typically required for down payments under 20%.

Mortgage Refinance

Replacing your existing mortgage with a new one, often to lower your rate or payment.

Mortgage Term

The length of time you have to repay your loan, commonly 15, 20, or 30 years.

Origination Fee

A fee charged by the lender for processing and creating your loan.

Owner’s Title Insurance

Protects the homeowner against title disputes or claims.

PITI

Principal, Interest, Taxes, and Insurance — the four components of a typical mortgage payment.

PMI (Private Mortgage Insurance)

Required for many conventional loans with less than 20% down. It can often be removed once sufficient equity is built.

Prepaid Interest

Interest paid at closing for the period between closing and your first mortgage payment.

Prepayment Penalty

A fee some lenders charge if you pay off your loan early.

Reverse Mortgage

A loan available to homeowners 62+ that allows them to convert home equity into cash.

Survey

A drawing showing property boundaries and structures.

Title Service Fees

Fees associated with issuing title insurance and verifying ownership.

USDA Loan

A government-backed loan offering no down payment options for eligible rural homebuyers.

VA Loan

A loan program for veterans and eligible service members, often requiring no down payment.

Have questions? Contact us to learn more about your options and how to get started.