4.8 Average Rating
30k+ Closed Loans
2,500+ Veterans Served
31% Faster Close
40+ Yrs. Experience
Thank you Veterans
Clear, simple definitions for mortgage terms.
Get expert mortgage guidance — schedule your consultation today.
Breaking Down the Mortgage Terms You Need to Know
At Strong Home Mortgage, we believe that understanding mortgage terminology is essential to making informed decisions. Our mortgage glossary is designed to break down complex terms into simple, easy-to-understand definitions, helping you stay informed at every step. Whether you’re reviewing loan documents or talking to your loan officer, this resource will give you the clarity and confidence you need.
Adjustable-Rate Mortgage
Mortgage type that features an interest rate that may fluctuate periodically over the loan’s lifetime. Initially, your lender may charge a lower interest rate that is fixed for a period. Most ARMs have a cap that limits rate movement during an adjustment period and for the duration of the loan.
Amortization
The gradual repayment of a mortgage loan through regular payments over time. Each payment covers interest and the principal amount, reducing your loan balance over the term.
Annual Percentage Rate (APR)
The total cost of borrowing as an annual percentage. It includes the interest rate and any additional fees, giving you a clear picture of what you’ll pay over the life of the loan.
Appraisal
An assessment of your property’s value, conducted by a licensed professional. Lenders require appraisals to ensure the loan amount matches the market value of the home.
Appreciation
Growth in property value over time. Key factors include location, condition, and selling price of comparable homes. Appreciation positively impacts home equity.
Balloon Loan
Mortgage type with lower initial monthly payments and a large single, final payment to repay the remaining balance of the loan.
Bridge Loan
A short-term loan that helps you buy a new home before selling your current one. It provides temporary financing until long-term funding is available.
Buydown
Lump-sum prepayment of mortgage interest to lower your monthly mortgage payment. Made by a lender or seller, often for a period of one to three years.
Buyer’s Agent
Real estate professional who works on behalf of the homebuyer.
Cash-Out Refinance
Replacing your current mortgage with a new one for a larger amount and taking the difference in cash. This is often used to access home equity for major expenses.
Closing or Settlement
Occasion when you sign, date, and notarize your new loan documents. Depending on property location or transaction type, a right of rescission period may apply. Where applicable, The Truth in Lending Act allows three business days to rescind or cancel a transaction. Funds are prohibited from being disbursed until the fourth business day.
Closing Costs
Closing costs are fees paid at the final settlement to obtain your new loan. These typically include lender fees, attorney fees, title insurance, appraisals, and more. Closing costs usually range from 2-5% of the loan amount.
Combined Loan-to-Value (CLTV) Ratio
The ratio between the unpaid principal of your first mortgage plus the unpaid principal of all subordinate mortgage financing and the appraised value of your home. Communicated as a percentage.
Commitment Letter
A document from a lender to a buyer outlining agreed-upon mortgage terms that signify financing is officially approved for a real estate transaction.
Conforming Loan
A mortgage loan that meets the dollar limits set by the Federal Housing Agency (FHFA) and standard features as defined by Fannie Mae and Freddie Mac.
Contingency
An interim condition in a sales contract that must be satisfied before a home sale is completed. In homebuying, the most common contingencies are home inspection (pass/fail) and loan approval.
Conventional Loan
Mortgage type that isn’t insured or guaranteed by the federal government. It can be for conforming or non-conforming loan amounts.
Debt-to-Income Ratio (DTI)
A percentage that compares your monthly debt payments to your gross monthly income. Lenders use your DTI to assess your ability to manage mortgage payments.
Deed
Legal document at closing that transfers ownership of real estate from seller to buyer. Lenders generally require a title search and report to ensure a borrower legally owns real estate used to secure the loan.
Deed of Trust
Legal document, which represents an agreement between the borrower and a lender to have property held in trust by a neutral and independent third party until the loan is paid off. Used in place of a mortgage in some US states. Title is vested in a trustee to secure loan repayment.
Delinquency
Failure to make payments in a timely fashion. Delinquency over a certain period of time may lead to default.
Default
Failure to comply with the terms of the loan set forth on the promissory Note and Mortgage or Deed of Trust, such as not making scheduled payments over a period of time. Default may expose borrowers to legal claims such as foreclosure.
Delinquency
Failure to make payments in a timely fashion. Delinquency over a certain period of time may lead to default.
Depreciation
Measure of decline in property value over time. Depreciation could be driven by factors such as economic circumstances, general wear and tear, or property damage.
Discount Points
An amount paid to your lender at closing in exchange for a lower interest rate. One discount point is 1% of the loan amount. One point on a $200,000 mortgage costs $2,000.
Down Payment
The amount of money you pay upfront toward the purchase of a home. Most conventional loans require at least 3-20% of the home’s purchase price as a down payment.
Draw
Receiving an advance against your available credit line.
Draw Period
The timeframe during which you can obtain advances from a credit line. At the end of this period, borrowers may be able to renew the credit line or be required to pay the outstanding balance in full or in monthly installments.
Earnest Money
Deposit made to the seller as a sign of good faith toward a down payment. Generally made when the purchase agreement is executed.
Equity
The difference between your home’s market value and what you owe on your mortgage. As you pay down the loan, your equity increases.
Escrow
An account set up by your lender to pay property taxes and insurance on your behalf. A portion of your monthly mortgage payment goes into this account to cover these costs when they’re due.
Fannie Mae, or FNMA (Federal National Mortgage Association)
Public-traded, government-sponsored enterprise (GSE) created by Congress. Established to stimulate the housing market by acting as a source of financing through the purchasing of mortgage loans from lenders to facilitate the flow of capital, thereby making mortgages more accessible to moderate and low-income borrowers.
Federal Housing Administration (FHA)
Agency under the Department of Housing and Urban Development. Guarantees certain mortgage loans by providing mortgage insurance, which protects FHA-approved lenders from losses. As a result, FHA loans allow for lower down payment minimums and lower credit score requirements.
Finance Charge
A finance charge is the total amount of interest and loan charges you would pay over the entire life of the mortgage loan. The finance charge can be found on page 5 of the Closing Disclosure in the “Loan Calculations” section and may include charges such as origination charges, discount points, mortgage insurance, and other applicable lender charges.
Fixed-Rate Mortgage
A type of mortgage where the interest rate remains the same for the entire loan term. This ensures consistent monthly payments, making it easier to budget.
Freddie Mac, or FHLMC (Federal Home Loan Mortgage Corporation)
Publicly traded, government-sponsored enterprise created by Congress. Rather than lending directly to borrowers, Freddie Mac operates in the US secondary mortgage market, buying loans from approved lenders. Those lenders, in turn, can provide more loans to qualified borrowers and keep capital flowing into the housing market.
Home Equity Line of Credit (HELOC)
A revolving line of credit secured by your home’s equity. For a fixed period of time, You can borrow as needed and only pay interest on the amount borrowed. After the draw period, a repayment period with principal and interest payments will apply.
Home Equity Loan (HELOAN)
A subordinate loan leveraging the equity you have in the property. Unlike a HELOC, your rate and monthly payments are fixed for the loan’s life. Uses for HELOANs include debt consolidation or payoff, home improvements, investing, emergency funds, college tuition, and more.
Homeowners Insurance
An insurance policy that protects your home and belongings from damage or theft.
HUD (US Department of Housing and Urban Development)
Government agency whose mission is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD administers the Federal Housing Administration (FHA) and enforces the Fair Housing Act.
Index
A benchmark interest rate that reflects general market conditions and that changes based on the market. Changes in the index, along with your loan’s margin, determine the changes to the interest rate for an adjustable-rate mortgage loan.
Interest-Only Loan
A loan that stipulates you pay only the interest due for a period of the loan term. Lowers your monthly payment but does not decrease your loan’s principal balance. Making interest-only payments results in larger payments coming due at the end of the interest-only payment period.
Interest Rate
The percentage of the loan amount charged by the lender for borrowing money. This rate affects your monthly payment and is either fixed or adjustable.
Jumbo Loan
A mortgage that exceeds the limits set by Fannie Mae and Freddie Mac, typically used to finance luxury homes or properties in high-cost areas.
Lien (and Lienholder)
A legal claim on your real property by a creditor. Used to secure debt. The lienholder is the individual or entity placing a lien.
Loan Estimate
A document from the lender that outlines the terms of your loan, including the interest rate, monthly payments, and closing costs. It helps you compare loan offers.
Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the appraised value of the home. A lower LTV can help you secure better loan terms, while a higher LTV may require mortgage insurance.
Lock Period
Amount of time you can secure an interest rate for your loan as long as you close within that time frame and there are no changes to your loan application. Usually ranges from 30-90 days. Generally, the longer the lock period, the more you pay in fees or interest.
Margin
Number of percentage points added or subtracted from the index to determine interest rate adjustments on an adjustable-rate mortgage (ARM). Specified in the promissory note and consistent for the loan’s lifetime.
Maturity Date
Date the outstanding loan principal, interest, and fees must be repaid in full.
Mortgage Insurance Premium (MIP)
Insurance required for FHA loans to protect the lender if the borrower defaults. This is usually paid as an upfront fee and as part of your monthly payment.
Non-Conforming loan
A mortgage that does not meet the guidelines of government-sponsored enterprises (GSE) such as Fannie Mae and Freddie Mac. GSE guidelines consist of a maximum loan amount, suitable properties, down payment requirements, credit requirements, and other factors.
Note
A written agreement in which a signer promises to pay a specific amount of money to another party.
Origination Fee
A fee charged by lenders for processing a mortgage loan. It is typically a percentage of the total loan amount.
Per Diem interest
Daily accrual of loan interest. Calculated by multiplying the outstanding loan balance by the annual interest rate and then dividing by 365 for days in a year.
Piggyback Loan
A second mortgage added (“piggybacked”) to a first mortgage and generally used in lieu of mortgage insurance. Loan Type is usually a home equity or HELOC loan.
PITI (Principal, Interest, Taxes, Insurance)
An acronym also referred to as your monthly mortgage payment.
Points
Optional fees paid upfront to lower your interest rate. One point is equal to 1% of your loan amount and can reduce your monthly payment.
Pre-Approval
A preliminary evaluation by a lender to determine how much you’re eligible to borrow. It shows sellers that you’re a serious buyer and helps streamline the homebuying process.
Prepayment Penalty
A fee charged by some lenders if you pay off all or part of your mortgage early. It is a clause included in the mortgage contract.
Prime Rate
Applied daily by The Wall Street Journal. Based on a survey of prime rates used by the 10 largest US banks. Changes in prime rate influence other rates, including mortgage interest rates.
Principal
The original loan amount, or the remaining balance of that amount, excluding interest. Part of your monthly payment goes toward reducing the principal.
Private Mortgage Insurance (PMI)
Insurance required for conventional loans when the down payment is less than 20%. PMI protects the lender if the borrower defaults and is typically added to your monthly payment.
Quit Claim Deed
A legal document that shifts responsibility in a home title to another. For example, when a property is conveyed through a will, as a gift, or as part of a divorce settlement. Used for spouses or in family situations in which more than one individual has an interest.
Rate Lock
An agreement with your lender to lock in a specific interest rate for a set period, protecting you from rate increases while your loan is being processed.
Refinancing
Replacing your existing mortgage with a new loan, often to secure a lower interest rate or adjust the loan term. Refinancing can also help you tap into your home’s equity.
Rescission
A form of contract cancellation permitted on specific transactions under the Truth in Lending Act, completed within three business days of closing.
Subordinate Financing
Any subsequent loan taken out after your initial first mortgage is considered to be a junior-lien or a subordinate mortgage.
Term
Number of years to pay off your loan. Used to determine payment amount, repayment schedule, and total interest paid over the loan’s lifetime.
Title
A legal document proving ownership of a property. Before closing, a title search ensures no outstanding liens or legal issues with the property.
Title Insurance
Insurance that protects both the lender and the borrower from claims against the property’s ownership, such as undisclosed liens or disputes.
Underwriting
The process your lender uses to assess the risk of offering you a loan. During underwriting, your financial information is reviewed to ensure you meet the loan requirements.
VA Loan
A government-backed mortgage for veterans, active-duty service members, and eligible spouses, insured by the US Department of Veterans Affairs (VA). VA loans from Strong Home Mortgage require no down payment and offer flexible credit requirements and lower interest rates.
Variable Rate
Interest rate that fluctuates in relationship to an index (e.g., prime rate). Accordingly, payments may increase or decrease.
Warranty Deed
A deed to real property for the buyer that guarantees that the seller owns clear title and that no prior liens or disputes exist against the property. The holder has legal selling rights.