Mortgage Glossary

Clear definitions for the terms you'll encounter.

Amortization

The process of paying off a loan over time through regular payments of principal and interest.

APR (Annual Percentage Rate)

The yearly cost of a loan including interest and certain fees, expressed as a percentage — useful for comparing offers.

Closing Costs

Fees paid at closing, including lender charges, title, appraisal, and prepaid taxes and insurance.

Debt-to-Income Ratio (DTI)

The percentage of your gross monthly income that goes toward debt payments — a key factor in qualifying.

Escrow

An account your lender uses to hold and pay property taxes and insurance on your behalf, usually collected as part of your monthly payment.

Lien

A legal claim against a property that must be paid when the property is sold. Your mortgage is a lien on your home.

Loan-to-Value Ratio (LTV)

The loan amount as a percentage of the home's value. A lower LTV usually means better terms and no mortgage insurance.

PITI

The four parts of a typical mortgage payment: Principal, Interest, Taxes, and Insurance.

Points (Discount Points)

An upfront fee paid to lower your interest rate. One point equals 1% of the loan amount.

Pre-Approval

A lender's conditional commitment to lend a specific amount after reviewing your credit and documents.

Principal

The amount you borrow, not including interest. Each payment reduces your principal balance.

Underwriting

The lender's process of verifying your income, assets, and credit to decide whether to approve your loan.