The plain-English mortgage glossary

In depth

The basics

• Principal — The amount you borrow (or the remaining balance you owe), separate from interest.
• Interest — The cost of borrowing, charged as a percentage of your balance.
• Equity — The share of your home you actually own — its value minus what you owe.
• Amortization — The process of paying off a loan through regular payments split between principal and interest over time.
• Down payment — The upfront portion of the purchase price you pay in cash, with the rest financed.
• Loan-to-value (LTV) — The loan amount as a percentage of the home’s value; lower LTV generally means less risk to the lender.
• Pre-approval — A lender’s conditional confirmation of how much you can borrow, based on a review of your finances.

Rates & terms

• Interest rate — The percentage used to calculate the interest on your loan; drives your monthly payment.
• APR (annual percentage rate) — A broader figure than the rate, folding in certain loan costs to reflect the fuller cost of borrowing.
• Fixed-rate mortgage — A loan whose rate never changes for its entire term.
• Adjustable-rate mortgage (ARM) — A loan with a fixed initial period, after which the rate can adjust periodically within caps.
• Loan term — The length of time to repay the loan, commonly 15, 20, or 30 years.
• Rate lock — An agreement holding your interest rate for a set period while your loan is processed.
• Points — Optional upfront charges that can adjust your rate; whether they make sense depends on your situation.

Costs, fees & the payment

• Closing costs — The fees to finalize your loan and purchase — lender charges, title, appraisal, and prepaids.
• PITI — The four parts of a typical payment: principal, interest, taxes, and insurance.
• Escrow / impound account — An account that collects and pays your property taxes and insurance, or holds funds neutrally during a purchase.
• PMI (private mortgage insurance) — Insurance protecting the lender on a conventional loan with a smaller down payment; removable as you build equity.
• Seller concession — A negotiated seller contribution toward the buyer’s closing costs.
• HOA / condo dues — Regular payments to a homeowners or condo association for shared maintenance and amenities.
• Earnest money — A good-faith deposit a buyer makes with an offer, typically held in escrow and applied at closing.

The process

• Underwriting — The lender’s verification of your finances and the property to confirm the loan is sound.
• Conditions — Specific items an underwriter needs finalized before closing; clearing them is routine.
• Appraisal — A licensed appraiser’s formal opinion of a home’s value, used by the lender.
• Contingency — A condition in a purchase contract — like inspection or financing — that must be met for the deal to proceed.
• Closing — The final step where documents are signed, funds exchanged, and ownership transfers.
• Credit score — A measure of how you’ve managed borrowing; one factor lenders weigh.
• Debt-to-income (DTI) — Your monthly debt payments as a share of gross monthly income; a key affordability measure.

Loan types

• Conventional loan — A loan not backed by a government agency; common for buyers with solid credit.
• Conforming loan — A conventional loan within the annual limit that follows standardized agency guidelines.
• Jumbo loan — A loan above the conforming limit, underwritten to each lender’s own guidelines.
• FHA loan — A government-insured loan with flexible credit and a low down payment.
• VA loan — A loan for eligible veterans and service members, often with no down payment or monthly mortgage insurance.
• USDA loan — A loan for eligible buyers in qualifying areas, often with no down payment.
• Refinance — Replacing an existing loan with a new one, often to change the rate, term, or tap equity.
• HELOC — A revolving line of credit secured by your home equity.

Specialty & investor terms

• Bank-statement loan — A loan qualifying self-employed income from deposits rather than tax returns.
• DSCR loan — An investor loan qualified on a property’s rental cash flow rather than personal income.
• DSCR (debt-service-coverage ratio) — Rental income divided by the property’s debt obligation; a key investor metric.
• Cap rate — Net operating income divided by property value; an unleveraged return measure.
• Crypto-backed lending — Using digital-asset wealth to help finance a home, often without selling.
• Foreign-national loan — Financing for international buyers without U.S. credit history or a Social Security number.
• Business-purpose loan — A loan for investment or business purposes rather than a consumer residence; not consumer credit.

Using this glossary

This glossary covers the terms you’re most likely to meet, but it’s not exhaustive — mortgages are a deep field, and every situation has its own wrinkles. If you come across a term that isn’t here, or want any of these explained in the context of your own scenario, just ask. Part of a good loan originator’s job is translating the jargon so you always understand exactly what’s happening with your loan.

The best next step from here depends on where you are. If you’re early, our education articles and calculators go deeper on the big topics linked above. If you’re ready to talk real numbers, a licensed loan originator can walk you through your options with no obligation — in plain English, every step of the way.