Mortgage & Real Estate Glossary
Comprehensive definitions of mortgage and real estate terms to help you understand the home buying and financing process.
Showing 20 of 20 terms
Amortization
The process of paying off a loan over time through regular payments. Each payment includes both principal and interest, with the proportion of principal increasing over time.
Example:
A 30-year fixed mortgage amortizes over 360 monthly payments.
Annual Percentage Rate (APR)
The total cost of borrowing expressed as a yearly rate, including interest and other loan costs such as broker fees, discount points, and some closing costs.
Example:
An APR of 4.5% includes both the interest rate and loan fees.
Appraisal
A professional assessment of a property's market value, typically required by lenders before approving a mortgage loan.
Example:
The appraisal valued the home at $350,000, which determined the maximum loan amount.
Balloon Payment
A large final payment due at the end of a loan term, often used in balloon mortgages where regular payments are lower but a significant amount is due at maturity.
Example:
A 5-year balloon mortgage might have low monthly payments but require a $200,000 balloon payment at the end.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction, including loan origination fees, title insurance, appraisal fees, and other charges.
Example:
Closing costs typically range from 2% to 5% of the loan amount.
Credit Score
A numerical representation of a borrower's creditworthiness based on their credit history, ranging from 300 to 850. Higher scores typically result in better loan terms.
Example:
A credit score of 750 or higher usually qualifies for the best mortgage rates.
Debt-to-Income Ratio (DTI)
A measure of a borrower's monthly debt payments compared to their gross monthly income, expressed as a percentage. Lenders use this to assess loan eligibility.
Example:
A DTI ratio of 36% means monthly debt payments equal 36% of gross monthly income.
Down Payment
The initial payment made when purchasing a home, typically expressed as a percentage of the purchase price. The remaining amount is financed through a mortgage.
Example:
A 20% down payment on a $300,000 home would be $60,000.
Escrow Account
An account held by the lender to collect and pay property taxes and insurance premiums on behalf of the borrower.
Example:
Monthly escrow payments ensure property taxes are paid on time.
Fixed-Rate Mortgage
A mortgage loan with an interest rate that remains constant throughout the entire loan term, providing predictable monthly payments.
Example:
A 30-year fixed-rate mortgage at 4% will have the same interest rate for all 360 payments.
Homeowners Insurance
Insurance that protects the homeowner against damage to the property and liability for injuries or property damage to others.
Example:
Homeowners insurance typically covers fire, theft, and natural disasters.
Interest Rate
The percentage of the loan amount charged by the lender for borrowing money, expressed as an annual rate.
Example:
A 4.5% interest rate means you pay 4.5% of the loan balance annually in interest.
Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the appraised value or purchase price of the property, expressed as a percentage.
Example:
An LTV of 80% means the loan amount is 80% of the home's value.
Mortgage
A loan used to purchase real estate, where the property serves as collateral for the loan.
Example:
A mortgage allows you to buy a home by borrowing money from a lender.
Private Mortgage Insurance (PMI)
Insurance that protects the lender if the borrower defaults on the loan, typically required when the down payment is less than 20%.
Example:
PMI is usually required on conventional loans with less than 20% down payment.
Principal
The original amount of money borrowed in a loan, not including interest or other charges.
Example:
On a $200,000 mortgage, the principal is $200,000.
Property Tax
Taxes levied by local governments on real estate property, typically based on the assessed value of the property.
Example:
Property taxes are usually paid annually or through monthly escrow payments.
Refinancing
The process of replacing an existing mortgage with a new loan, often to obtain better terms or lower interest rates.
Example:
Refinancing from 6% to 4% interest rate can save hundreds of dollars per month.
Title Insurance
Insurance that protects the lender and borrower against losses from defects in the title to the property.
Example:
Title insurance ensures you have clear ownership of the property.
Underwriting
The process by which a lender evaluates a borrower's creditworthiness and the risk of lending money.
Example:
During underwriting, the lender reviews your income, credit, and property details.
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