Mortgage guides
Mortgage terminology guide
Sources and calculations checked:
Simple definitions of 24 common mortgage terms, from principal and interest to loan disclosures and housing costs.
Amortization
Paying down principal through scheduled payments; the principal and interest portions can vary over time.
Annual percentage rate (APR)
An annualized measure combining interest and certain loan costs to help compare financing.
Appraisal
A professional assessment of property value for lending or other purposes; it does not replace a home inspection.
Closing costs
Costs of obtaining financing and completing the property transaction, excluding the down payment.
Closing Disclosure
A standardized disclosure provided before closing that lists final loan terms, payments, and closing costs.
Conforming loan
A conventional loan that meets Fannie Mae or Freddie Mac purchase requirements, including loan amount limits and other underwriting standards.
Conforming loan limits
FHFA-published maximum conforming loan amounts, determined by year, location and residential unit count; these are not home-price limits or an individual borrower’s approved amount.
Debt expense ratio (DTI)
Monthly housing expenses plus other qualifying monthly debt payments, divided by gross monthly income; underwriting may include additional payment obligations.
Down payment
The portion of the purchase price paid without that mortgage; it is not the full cash needed at closing.
Escrow account
An account a servicer uses to collect and pay property taxes and insurance; it differs from escrow holding funds during a purchase.
FHA Mortgage Insurance Premium (MIP)
An FHA Mortgage Insurance Premium (MIP) is a fee paid by the borrower for FHA insurance that protects the lender against losses from borrower default, rather than protecting the borrower. Most FHA forward mortgages include an upfront premium (UFMIP, paid at closing or financed into the loan, increasing the balance and interest costs) and an annual premium collected monthly, with rates and duration determined by loan terms and applicable FHA rules.
Homeowners association fees (HOA fees)
Fees paid to an association for shared areas and services; coverage and payment arrangements vary by community.
Homeowners insurance
Insurance covering specified property and liability risks under the policy; it is different from mortgage insurance.
Housing expense ratio
Total monthly housing expenses divided by gross monthly income; applicable limits depend on the program and underwriting method.
Interest rate
The rate used to calculate interest, usually expressed annually; it does not include all loan fees.
Loan Estimate
A standardized disclosure of proposed loan terms, estimated payments, and costs; it is not loan approval.
Loan term
The repayment period stated in the loan agreement, such as 15 or 30 years.
Loan-to-value ratio (LTV)
The loan amount divided by the property value used in underwriting, usually the lower of price or appraised value for a purchase.
Monthly principal-and-interest payment
The monthly amount for principal repayment and interest, excluding taxes, insurance, and HOA fees.
Mortgage insurance
Insurance primarily protecting the lender against borrower default; it does not remove your repayment obligation.
Non-Qualified Mortgage
A mortgage that does not meet the applicable Qualified Mortgage criteria, sometimes offering alternative income documentation or different loan features. The label does not mean the loan is unlawful, the borrower is unqualified or no review is required.
Principal
The amount borrowed; the unpaid portion is the outstanding principal balance.
Private mortgage insurance (PMI)
Insurance provided by a private insurer that protects the lender against losses from borrower default, not the borrower; it may be required on a conventional loan depending on the down payment or equity and loan structure. Borrower-paid PMI may be canceled or terminated when applicable requirements are met.
Property taxes
Local taxes on real estate, which can change with assessments, tax rates, exemptions, and other factors.
Qualified Mortgage (QM)
A mortgage meeting specified requirements for repayment assessment, loan features and fees under applicable rules. This is a regulatory classification, distinct from conventional or conforming status, and does not mean an individual application is approved.
Rate lock
An agreement with the lender to hold a specified interest rate through an agreed period, provided the loan closes within that period and the application continues to meet the lock’s conditions. Application changes or expiration can affect the rate, and an extension may involve a fee; a rate lock is not loan approval.
Total monthly housing expenses
Monthly principal and interest plus property taxes, homeowners insurance, applicable HOA fees, mortgage insurance, and other applicable housing costs.
These two definitions were checked against FHFA: Conforming loan limits and Fannie Mae: Loan limits on October 13, 2026.
Definitions checked against CFPB mortgage terms, the Loan Estimate explainer, and the Closing Disclosure explainer.
Qualified Mortgage and Non-Qualified Mortgage definitions checked against CFPB: What is a Qualified Mortgage? on October 17, 2026.
PMI definition checked against CFPB: Private mortgage insurance and PMI cancellation on October 19, 2026.
FHA mortgage insurance definition checked against HUD: Premium structure and premium duration on October 19, 2026.
Rate lock definition checked against CFPB: What is a rate lock? on October 21, 2026.