Mortgage glossary

Adjustable-rate mortgage (ARM)

A loan whose interest rate stays fixed for an initial period, then can change on a schedule. The change is tied to an index plus a margin, and it is limited by caps. The payment can go up.

Amortization

The schedule that pays a loan down over time. Early payments are mostly interest. Later payments are mostly principal.

Annual percentage rate (APR)

A way of expressing the interest rate plus certain fees, spread over the loan term. Use it to compare offers. It is not the same as your monthly interest rate, and it is a weak comparison if you will not keep the loan for the full term.

Appraisal

An independent opinion of what the property is worth. The lender uses it. You usually pay for it. A low appraisal can change the loan amount or the cash you need.

Balloon payment

A large remaining balance that comes due on a set date, before the loan would have fully amortized. You must pay it, refinance it, or sell. That is a real risk.

Cash-out refinance

A new mortgage for more than you owe. You pay off the old loan and take the difference in cash, secured by the house. The new loan can have closing costs and a new term.

Closing disclosure

The form that shows the final loan terms and closing costs. You should receive it before closing, with time to compare it to the Loan Estimate and ask questions.

Conforming loan

A conventional loan that meets the size and guideline limits used by Fannie Mae and Freddie Mac. The dollar limit changes and can be higher in some counties.

Debt-to-income ratio (DTI)

Your monthly debt payments divided by your gross monthly income. Lenders look at a housing-only ratio and a ratio that includes the new payment plus other debts. Guidelines differ by loan.

Discount points

An upfront fee, often a percent of the loan, paid to lower the interest rate. Whether points help depends on how long you keep the loan. They are not always a bargain.

Down payment

Cash you pay toward the price of the home at the start, separate from closing costs. The rest is the loan, if the lender agrees.

Escrow account

An account the loan servicer may hold to pay property taxes and homeowners insurance when they come due. Your monthly payment then includes those amounts. The bill can still change.

Equity

The part of the home’s value that is yours: value minus what you owe. It is not cash in the bank until you sell or borrow against it.

Fixed-rate mortgage

A loan whose interest rate does not change. Principal and interest stay the same for the term. Taxes and insurance can still change the total payment.

Funding fee

A one-time VA charge on many VA loans. Some veterans are exempt. It can often be financed into the loan. It is not the same thing as monthly mortgage insurance.

HELOC

A home equity line of credit: a revolving line secured by your home, separate from a cash-out refinance. You can often draw, repay, and draw again during a set period. The rate is often variable. The house is the collateral.

Loan estimate

The early disclosure of rate, payment, and closing costs. Lenders must provide it after you apply. Compare it line by line with the Closing Disclosure.

Loan-to-value ratio (LTV)

The loan amount divided by the property value. A higher LTV usually means a smaller down payment and, on many conventional loans, mortgage insurance.

Mortgage insurance

Insurance that protects the lender, not you, when the down payment is small. Conventional loans call it PMI. FHA, VA, and USDA each have their own version of a fee or premium.

NMLS

The Nationwide Multistate Licensing System. Freedom Family Mortgage’s company ID is 2409884. Consumers can look the company up at NMLS Consumer Access.

PITI

Principal, interest, taxes, and insurance — the usual pieces of a full monthly housing payment. Add HOA dues and mortgage insurance when they apply.

Pre-approval

A lender’s conditional look at your credit, income, and assets. It is stronger than a conversation, and it is still not a promise to lend until the property and the rest of the file are approved.

Pre-qualification

An early estimate of a price range based on what you tell us. The form on this website does not pull credit. It is a way to start, not an approval.

Title insurance

A policy that covers certain hidden problems with the legal ownership of the property. The lender’s policy protects the lender. An owner’s policy protects you.

Underwriting

The lender’s review of you and the property against the rules of the loan. An approval can come with conditions you still have to meet.

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