Top 25 Commonly Used Mortgage Terms

Navigating the complex world of home loans can be difficult enough without all of the industry jargon that flies around. Here are 25 terms you might hear when looking for a mortgage loan – hopefully this will help clear things up.


Adjustable-Rate Mortgage (ARM)

A mortgage loan with an interest rate subject to periodic change over the loan term based on changing market conditions.


The paying down of a principal over time. In a typical mortgage loan, the principal is scheduled to be paid off, or fully amortized, over the term of the loan.

Annual percentage rate, or APR

A standardized method of calculating the cost of a mortgage, stated as a yearly rate, which includes items such as interest, mortgage insurance, and certain points or credit costs.

Cash Out Refinance

A refinancing of a mortgage in which the new principal (the borrowed amount) exceeds the outstanding principal of the original loan by at least 5%. In other words, the homeowner is taking equity out of the home that they can then use to pay for other expenses.

Closing costs

Expenses incurred by buyers and sellers when transferring ownership of property. Closing costs normally include an origination fee, attorney’s fee, taxes, escrow payments, title insurance and sometimes discount points.

Credit Score

A three-digit number based on an individual’s credit report used to indicate credit risk. Generally, a higher credit score means less risk for the lender, so you may be able to obtain a lower interest rate on a loan.

Debt-To-Income Ratio

A personal finance measure that compares an individual’s debt payment to his or her overall income. A debt-to-income ratio (DTI) is one way mortgage lenders measure an individual’s ability to manage monthly payment and repay debts.

Down Payment

The amount of a property’s purchase price that the buyer pays in cash and doesn’t finance with a mortgage.

FHA Loan

A mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA).

Fixed Rate Mortgage

A mortgage loan with an interest rate that remains the same over the term of the loan.

Good Faith Estimate (GFE)

A statement from a lender estimating the total costs associated with obtaining a loan.

Home Equity

The difference between the current value of the house and the amount of money owed on the mortgage.

Home Equity Line of Credit

An open credit line secured by the equity in your home.

Home Equity Loan

A loan that is secured by home equity and limited to one lump-sum amount.

Interest-Only Mortgage

An adjustable-rate mortgage that allows borrowers to pay only the interest for a specified period of time.

Interest Rate

A measure of the cost of borrowing money.

Jumbo Loan

A mortgage with a loan amount exceeding the conforming loan limits set by the Office of Federal Housing Enterprise Oversight (OFHEO), and therefore, not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac.

Loan- To-Value Ratio (LTV)

A percentage comparing the loan amount to the purchase price of a property; ex: if you get a loan for $90,000 to purchase a home that costs $100,000, the LTV is 90%.

Principal, Interest, Taxes, Insurance (PITI)

The components of a mortgage payment. Principal is the balance of the loan; interest is the charge you pay to the lender for borrowing money; taxes refer to the property taxes you pay as a homeowner; insurance refers to both property insurance and your private mortgage insurance.


Some borrowers pay “discount points” to reduce the loan’s interest rate. Some lenders charge “origination points” to cover expenses of making a loan. Factored into the loan’s APR, a point equals 1% of the loan amount.

Private mortgage insurance (PMI)

An insurance policy paid by the borrower that protects the lender against default on loans by providing a way for mortgage companies to recoup the costs of foreclosure.

Second Mortgage

A mortgage taken out on a property that is already mortgaged. Typically used to draw cash from a home for other expenses.

Seller Concession

A seller concession involves the seller of a property offering a potential buyer an incentive, such as paying for part of the closing costs, to make purchasing the property more attractive financially.


The analysis of the risk a lender would assume if a particular mortgage loan application is approved; based on borrower credit, income, and other factors.

VA Loan

A mortgage loan program established by the United States Department of Veterans Affairs to help veterans, active military service personnel, and their families obtain home financing.

Check out our other blogs to learn more about mortgage loans!