The terms behind a home loan, in plain English.
69 terms you will meet on a Loan Estimate, a HELOC agreement, or a refinance quote. Each definition links to the guide that explains it with a worked example, and to the primary source behind it.
A
- Adjustable-rate mortgage (ARM)
A mortgage whose rate is fixed for an initial period and then adjusts at set intervals to an index plus a margin, within limits set by rate caps.
- Amortization
Repaying a loan through scheduled payments that cover the interest due and part of the principal, so the balance reaches zero by the end of the term. Early payments are mostly interest.
- Annual percentage rate (APR)
A yearly rate that combines the interest rate with certain upfront loan costs, such as points and lender fees, so offers with different costs can be compared. It assumes you keep the loan for its full term.
- Appraisal
A formal estimate of a home’s value, usually ordered by the lender, that helps determine how much it will lend.
Read the guide CFPB: What you should know about HELOCs (PDF)
B
- Back-end ratio
The housing payment plus all other monthly debt payments, divided by gross monthly income. Fannie Mae’s Selling Guide states its maximums for this ratio, and FHA limits it alongside the housing ratio.
Read the guide Fannie Mae Selling Guide: B3-6-02, Debt-to-income ratios HUD: FHA Single Family Housing Policy Handbook 4000.1 (PDF)
- Balloon payment
A large payment due at the end of a loan, when the remaining balance must be paid all at once. Some HELOCs end with one instead of a repayment schedule.
Read the guide CFPB: What you should know about HELOCs (PDF)
- Break-even point
The month when savings from a lower payment or rate have repaid the upfront cost of refinancing or of buying points.
C
- Cash to close
The total you bring to closing: total closing costs plus the down payment, minus your earnest money deposit and any seller or lender credits.
Read the guide CFPB: Regulation Z § 1026.37, Loan Estimate contents
- Cash-out refinance
Replacing your mortgage with a larger new loan and receiving the difference in cash. The new rate applies to the entire balance, not only to the cash you take out.
Read the guide CFPB: Alternatives to a HELOC CFPB: Using home equity to meet financial needs (PDF)
- Closing costs
The fees and charges paid to complete a mortgage, including lender charges, third-party services, government fees, prepaid items, and the initial escrow deposit.
- Closing Disclosure
A five-page form with the final terms and costs of your mortgage. The lender must give it to you at least three business days before closing.
- Combined loan-to-value ratio (CLTV)
All debt secured by a home, including a new loan or line of credit, divided by the home’s appraised value. Lenders use it to cap home equity borrowing.
- Conforming loan limit
The largest loan Fannie Mae and Freddie Mac will generally acquire, set each year by FHFA. For 2026 it is $832,750 for a one-unit home in most areas, with a ceiling of $1,249,125 in high-cost areas.
- Conventional loan
A mortgage that is not part of a specific government program. With less than 20% down, it typically requires private mortgage insurance.
Read the guide CFPB: Conventional loans CFPB: How mortgage insurance works
D
- Debt-to-income ratio (DTI)
All of your monthly debt payments divided by your gross monthly income. Lenders use it to judge whether you can take on a new payment, and each sets its own limits.
- Discount points
Upfront fees, each equal to 1% of the loan amount, paid to the lender in exchange for a lower interest rate.
- Down payment
The part of a home’s purchase price you pay in cash rather than borrow.
- Draw period
The years during which you can borrow from a HELOC up to its limit. Minimum payments during this period are often interest-only.
E
- Earnest money deposit
A deposit made when a purchase offer is accepted, showing good faith. It is typically credited toward your cash to close.
- Escrow account
An account your mortgage servicer uses to pay property taxes and homeowners insurance from part of each monthly payment.
F
- FHA loan
A mortgage insured by the Federal Housing Administration. FHA mortgage insurance is required on every FHA loan and has both an upfront and a monthly cost.
Read the guide CFPB: How mortgage insurance works HUD: FHA Single Family Housing Policy Handbook 4000.1 (PDF)
- Fixed-rate mortgage
A mortgage whose interest rate stays the same for the life of the loan, so the principal-and-interest payment does not change.
- Front-end ratio
The proposed monthly housing payment, including taxes, insurance, mortgage insurance, and association dues, divided by gross monthly income. FHA calls it the total mortgage payment to effective income ratio.
Read the guide HUD: FHA Single Family Housing Policy Handbook 4000.1 (PDF)
G
- Gross monthly income
Monthly income before taxes and other deductions are taken out. Lenders use it, not take-home pay, to calculate debt-to-income ratios.
H
- Home equity
The value of your home minus the amount you owe on it.
- Home equity line of credit (HELOC)
A line of credit secured by your home that lets you borrow repeatedly up to a limit during a draw period, usually at a variable rate, followed by a repayment period.
- Home equity loan
A lump-sum loan secured by your home, usually with a fixed rate and equal payments, that sits behind your first mortgage.
I
- Index
A published market rate, such as the prime rate, that a variable or adjustable rate follows. The rate you pay is the index plus a margin.
Read the guide CFPB: What you should know about HELOCs (PDF)
- Initial escrow payment
The amount deposited into a new escrow account at closing to start paying future property tax and insurance bills. It appears in section G of the Loan Estimate.
Read the guide CFPB: Regulation Z § 1026.37, Loan Estimate contents
- Interest-only payment
A payment that covers only the interest due, so the balance does not go down.
- Interested party contribution
Money a seller, builder, real estate agent, or other party with a stake in the sale (for FHA loans, this can include the lender) puts toward the buyer’s closing costs, points, or a buydown, often called a seller concession. Loan programs cap it as a share of the price or value; Fannie Mae’s limit depends on occupancy and the loan-to-value ratio, and FHA’s is generally 6% of the sales price.
Read the guide Fannie Mae Selling Guide: Interested party contributions HUD: FHA Single Family Housing Policy Handbook 4000.1 (PDF)
L
- Lender credit
Money a lender applies toward your closing costs in exchange for a higher interest rate.
- Lien
A legal claim against property that secures a debt. A mortgage and a HELOC each place a lien on the home, which is paid off when the home is sold.
- Loan Estimate
A three-page form a lender must send within three business days of receiving your mortgage application, showing the expected rate, payment, and closing costs. It is not an approval.
- Loan term
How long you have to repay a mortgage, such as 15 or 30 years. A shorter term typically has a lower rate and a higher monthly payment, and costs less in total interest.
- Loan-level price adjustment (LLPA)
A risk-based fee Fannie Mae and Freddie Mac charge lenders on the loans they buy (FHFA also calls them upfront guarantee fees or delivery fees), set by features such as credit score, loan-to-value ratio, and loan purpose. Lenders usually build it into the rate. Fannie Mae’s matrix has a separate, higher grid for cash-out refinances.
Read the guide Fannie Mae: Loan-level price adjustment matrix (PDF) FHFA: Guarantee fee review fact sheet (2015)
- Loan-to-value ratio (LTV)
The loan balance divided by the home’s value. A conventional loan with less than 20% down, which means an LTV above 80%, typically requires private mortgage insurance.
M
- Margin
The fixed percentage a lender adds to the index to set a variable or adjustable rate.
Read the guide CFPB: What you should know about HELOCs (PDF)
- Mortgage application
For most mortgages, Regulation Z defines an application as six pieces of information: your name, income, Social Security number, the property address, an estimate of its value, and the loan amount sought. Once a lender has them, it must send a Loan Estimate within three business days.
Read the guide CFPB: Regulation Z § 1026.2(a)(3), definition of application CFPB: Regulation Z § 1026.19(e), Loan Estimate timing and fees
- Mortgage insurance
Insurance that protects the lender, not you, if you fall behind on payments. It is typically required with less than 20% down and on FHA and USDA loans.
O
- Origination charges
What the lender and any loan originator charge to make the loan, including points. They appear in section A of the Loan Estimate.
Read the guide CFPB: Regulation Z § 1026.37, Loan Estimate contents
P
- Payoff statement
A statement of the amount needed to pay a loan in full as of a specific date. For loans secured by a home, it must be sent within seven business days of a written request, with limited exceptions.
Read the guide CFPB: Regulation Z § 1026.36, payoff statements
- PITI
Principal, interest, property taxes, and homeowners insurance: the main parts of a monthly housing payment.
- Preapproval or prequalification letter
A lender’s letter stating how much it is willing to lend you, up to a certain amount and based on certain assumptions. Lenders use the two names differently; some verify your information only for a preapproval. Neither is a guaranteed loan offer.
Read the guide CFPB: Prequalification and preapproval letters
- Prepaids
Costs paid at closing before your first regular payment, such as homeowners insurance premiums and interest from closing until your first payment period begins. They appear in section F of the Loan Estimate.
Read the guide CFPB: Regulation Z § 1026.37, Loan Estimate contents
- Prepayment penalty
A fee some loans charge if you pay off the balance early.
- Prime rate
A rate set by individual banks and often used as the index for HELOCs. The Federal Reserve reports the prime rate posted by the majority of the largest 25 banks.
- Principal
The amount you borrowed, or the part of it you still owe, not counting interest.
- Private mortgage insurance (PMI)
Mortgage insurance on a conventional loan. You can generally ask to cancel it when the balance is scheduled to reach 80% of the home’s original value, and it must generally end at 78% if you are current on payments.
Read the guide CFPB: When you can remove private mortgage insurance
Q
- Qualified Mortgage (QM)
A loan that meets federal requirements, including limits on risky features and on price, that give the lender a presumption it followed the ability-to-repay rule. For applications received since October 1, 2022, the general definition uses a price test instead of a 43% debt-to-income limit.
Read the guide CFPB: What is a Qualified Mortgage? CFPB: General QM loan definition final rule (2020) CFPB: General QM mandatory compliance date delay (2021, PDF)
R
- Rate cap
A limit on how much an adjustable rate can rise at each adjustment or over the life of the loan. Every variable-rate loan secured by a home must state its maximum rate.
Read the guide CFPB: Consumer handbook on adjustable-rate mortgages (PDF) CFPB: Regulation Z § 1026.30, maximum interest rate
- Rate lock
A lender’s commitment to hold an interest rate and points for a set period while your loan is processed. The Loan Estimate shows whether your rate is locked and until when.
- Recording fees
Fees paid to a local government to record the mortgage and deed in public records. They appear in section E of the Loan Estimate.
Read the guide CFPB: Regulation Z § 1026.37, Loan Estimate contents
- Refinance
Replacing an existing mortgage with a new loan, usually to change the rate, the term, or the amount borrowed.
- Repayment period
The years after a HELOC’s draw period ends, when you can no longer borrow and must repay the balance. Payments are often significantly higher than during the draw period.
- Right of rescission
For most loans secured by your principal home other than a loan to buy or build it, the right to cancel until midnight of the third business day after the latest of closing, the cancellation notice, or the required disclosures.
Read the guide CFPB: Regulation Z § 1026.23, right of rescission
S
- Seasoning
How long you must have owned a home or held its mortgage before a refinance. For a Fannie Mae cash-out refinance, generally six months on title and a first mortgage at least 12 months old.
Read the guide Fannie Mae Selling Guide: Cash-out refinance transactions
- Second mortgage
A loan secured by your home that ranks behind the first mortgage, such as a home equity loan or a HELOC.
- Servicer
The company that collects your mortgage payments and manages the escrow account. It may be different from the lender that made the loan.
T
- Temporary buydown
An arrangement in which a seller, builder, lender, or you pay money up front to lower the mortgage payment for a limited time, usually one to three years. The note rate generally stays the same, and you generally qualify at the full note-rate payment.
Read the guide CFPB: Why mortgage payments change Fannie Mae Selling Guide: Temporary interest rate buydowns
- Title insurance
Insurance against claims on a property’s ownership from before your purchase. Most lenders require a lender’s policy; an owner’s policy is optional.
- Total Interest Percentage (TIP)
A figure on page 3 of the Loan Estimate showing the total interest you would pay over the full loan term as a percentage of the loan amount.
- Transfer taxes
State or local taxes charged when property changes hands. Who pays them depends on local rules and the purchase contract.
Read the guide CFPB: Regulation Z § 1026.37, Loan Estimate contents
U
- Underwriting
The lender’s review of your income, assets, debts, credit, and the property before it approves a loan.
- USDA loan
A mortgage program of the U.S. Department of Agriculture. Like an FHA loan, it charges mortgage insurance both at closing and monthly, typically at a lower cost.
V
- VA loan
A mortgage for eligible servicemembers and veterans backed by a Department of Veterans Affairs guarantee, which takes the place of mortgage insurance.
- Variable rate
An interest rate that can change over time, usually following an index. HELOCs and savings accounts commonly have variable rates.
Last updated on . Definitions are general education; your loan documents govern your own terms.