Form GLS‑04 · Reference
The mortgage glossary.
Every industry hides simple ideas behind hard words, and lending is worse than most. Here's the vocabulary you'll meet in quotes, disclosures, and closing documents — defined the way a friend would define them.
Amortization
The schedule by which a loan is paid down. Each fixed payment is split between interest (charged on the remaining balance) and principal (which reduces it), so early payments are mostly interest and late payments are mostly principal. The main calculator builds this schedule month by month.
APR (Annual Percentage Rate)
The interest rate plus most lender fees, expressed as a single yearly rate — designed to make loans with different fee structures comparable. A loan with a low advertised rate but heavy fees will show a higher APR. Compare APRs across lenders, but compute your payment from the note rate.
ARM (Adjustable-Rate Mortgage)
A loan whose rate is fixed for an initial period (often 5, 7, or 10 years), then adjusts periodically based on a market index. Written as "5/1" or "7/6" — the first number is the fixed years, the second how often it adjusts after (in years or months). Cheaper at first, uncertain later.
Closing costs
Everything you pay to complete the transaction beyond the price itself: origination fees, appraisal, title insurance, recording fees, prepaid taxes and insurance. Typically 2–5% of the loan amount for a purchase; they apply to refinances too, which is why breakeven math matters.
Conventional loan
A mortgage not insured by a government program (unlike FHA, VA, or USDA loans). Most follow limits and standards set by Fannie Mae and Freddie Mac, in which case they're also called "conforming" loans. Conventional loans allow PMI removal at 20% equity, which government loans handle differently.
DTI (Debt-to-Income ratio)
Your monthly debt payments divided by gross monthly income. Lenders check two versions: front-end (housing costs only) and back-end (housing plus all other debts). These ratios are the machinery inside the affordability calculator.
Down payment
The part of the price you pay in cash; the loan covers the rest. Twenty percent is the traditional benchmark because it avoids PMI, but many programs allow far less — 3–5% conventional, 3.5% FHA, 0% VA — trading a smaller check now for a larger loan and extra monthly costs.
Earnest money
A deposit (commonly 1–3% of the price) made when your offer is accepted, showing the seller you're serious. It's held by a neutral party and applied toward your down payment at closing — but can be forfeited if you back out for a reason your contract doesn't protect.
Equity
The part of the home you actually own: current market value minus what you still owe. It grows two ways — every principal payment, and any appreciation in the home's value. Selling costs come out of it when you cash out, which the rent vs. buy worksheet accounts for.
Escrow
Confusingly, two things. Before closing, "escrow" is the neutral third party holding funds and documents. After closing, an "escrow account" is where your lender collects a slice of property tax and insurance with each payment, then pays those bills for you — which is why your total bill exceeds the P&I this site calculates.
Fixed-rate mortgage
A loan whose rate — and therefore whose principal-and-interest payment — never changes for the entire term. The 30-year fixed is the standard American mortgage; the 15-year fixed trades a higher payment for a lower rate and far less total interest (see the 15 vs. 30 guide).
Loan Estimate
A standardized three-page form every lender must send within three business days of your application, laying out the rate, payment, closing costs, and cash to close in identical format. It exists precisely so you can put quotes from different lenders side by side — use it that way.
LTV (Loan-to-Value ratio)
The loan amount divided by the home's value. Put 20% down and your LTV is 80%. Lower LTV means less lender risk, which is why crossing the 80% line — from either direction — is what turns PMI on and off.
Note rate
The plain interest rate written on the loan itself — the number your monthly payment is actually computed from. Distinct from APR, which folds in fees. When you enter a rate into any calculator on this site, this is the rate you want.
Origination fee
What the lender charges for making the loan — underwriting, processing, and their margin — usually 0.5–1% of the loan amount, listed in section A of your Loan Estimate. It's one of the more negotiable line items in closing costs.
PITI
Principal, Interest, Taxes, and Insurance — the full monthly cost of owning, and the figure lenders qualify you on. Calculators (including this site's main one) usually show P&I only, because taxes and insurance vary by county and policy. Always budget on PITI, not P&I.
PMI (Private Mortgage Insurance)
Insurance protecting the lender — not you — required on conventional loans with less than 20% down. It costs roughly 0.3–1.5% of the loan per year until your balance reaches 80% of the home's original value. Full removal rules are in the PMI guide.
Points (discount points)
Prepaid interest: one point costs 1% of the loan amount and buys a permanently lower rate, typically by around 0.25%. Worth it only if you keep the loan long enough for the monthly savings to repay the upfront cost — the same breakeven logic as a refinance.
Pre-approval
A lender's conditional commitment after actually verifying your income, assets, and credit — much stronger than a "pre-qualification," which is based on what you tell them. Sellers take offers with pre-approvals seriously; get one before shopping in earnest.
Principal
The amount you borrowed and still owe, not counting interest. Interest is charged on the remaining principal every month, which is why extra payments toward principal punch above their weight: they shrink the base every future interest charge is computed on.
Rate lock
A lender's guarantee to hold your quoted rate for a set window — usually 30 to 60 days — while the loan closes. Without one, your rate floats with the market until closing. Locks can sometimes be extended for a fee, or come with a one-time "float down" if rates fall.
Recast
Making a large lump-sum principal payment and having the lender re-amortize the loan over its remaining term — which lowers your monthly payment without changing the rate or restarting the clock. Cheaper than refinancing (usually a small flat fee), but not all loans allow it.
Refinance
Replacing your current mortgage with a new one — for a lower rate, a different term, or to pull cash out of your equity. New closing costs apply, so the decision comes down to breakeven math, which the refinance worksheet does for you.
Underwriting
The lender's verification stage: confirming your income, assets, debts, credit, and the home's appraised value all support the loan. Most of the paperwork requests during a mortgage come from underwriting. "Clear to close" means underwriting is finished and satisfied.
Definitions are the map; the calculators are the territory. Try the amortization calculator, the refinance worksheet, or the affordability worksheet to watch these terms do their work.