Buying a home comes with a lot of new terms and abbreviations — and it’s completely normal to feel overwhelmed by the language alone. Understanding these terms can make the mortgage process feel more manageable and help you ask better questions along the way.
This guide breaks down common mortgage words and phrases in plain language, so you can feel more confident as you prepare for homeownership.
Amortization: This refers to how your loan is paid off over time through regular monthly payments. Each payment includes both principal and interest, with more interest paid early in the loan and more principal paid later on.
Closing Costs: These are the costs paid at the end of the home-buying process to finalize the loan. They may include things like appraisal fees, title work, and prepaid expenses. Closing costs are separate from your down payment.
Credit Score: A number that helps lenders understand how you’ve managed credit in the past. Credit scores can affect loan options and terms, but they’re just one piece of the overall picture.
Down Payment: The amount of money you pay upfront toward the purchase of a home. Down payment requirements vary depending on the loan type and individual qualifications.
Escrow: An escrow account is used to collect and hold funds for certain home-related expenses, such as property taxes and homeowners insurance. These costs are often included in your monthly mortgage payment and paid on your behalf when due.
Fixed-Rate Mortgage: A mortgage where the interest rate stays the same for the life of the loan. This means your principal and interest payment remains consistent, which many homeowners find helpful for budgeting.
Interest Rate: The percentage charged for borrowing money. Your interest rate plays a role in determining your monthly payment, but it’s not the only factor.
Loan Term: The length of time you have to repay the loan, such as 15 or 30 years. Shorter terms often mean higher monthly payments but less interest paid over time.
Mortgage Pre-Qualification: An early step that provides an estimate of how much you may be able to borrow, based on basic financial information. It’s meant to guide planning and is not a loan commitment.
Principal: The original amount of money borrowed, not including interest.
Rate Lock: A rate lock allows you to secure an interest rate for a set period while your loan is being processed. Rate lock availability and timing can vary.
Underwriting: The process where a lender reviews your financial information in detail to make a final lending decision. This step helps ensure the loan fits your financial situation.
Common Mortgage Abbreviations
You may hear these shortened terms during conversations, on paperwork, or in emails. Knowing what they mean can make the process feel much less overwhelming.
APR – Annual Percentage Rate: Shows the overall cost of borrowing, including interest and certain fees, expressed as a yearly rate. APR can help compare loan options, but it’s not the same as the interest rate.
DTI – Debt-to-Income Ratio: A comparison of how much you owe each month versus how much you earn. Lenders use this to understand how comfortably a mortgage payment may fit into your budget.
LTV – Loan-to-Value Ratio: The percentage of the home’s value that you’re borrowing. For example, a higher down payment usually means a lower LTV.
P&I – Principal and Interest: The portion of your monthly mortgage payment that goes toward repaying the loan itself (principal) and the cost of borrowing (interest). This does not include taxes or insurance.
PITI – Principal, Interest, Taxes, and Insurance: The full breakdown of what may be included in a monthly mortgage payment when taxes and insurance are escrowed.
PMI – Private Mortgage Insurance: Insurance that may be required when the down payment is below a certain percentage. PMI protects the lender, not the borrower, and may be removed later depending on the loan type and balance.
HOI – Homeowners Insurance: Insurance that helps protect your home and belongings in case of damage or loss. This is often included in your monthly payment if escrowed.
FICO: A commonly used credit scoring model. Your FICO score is one of the factors lenders consider when reviewing a mortgage application.
ARM – Adjustable-Rate Mortgage: A mortgage with an interest rate that can change over time after an initial fixed period.
CD – Closing Disclosure: A document you receive before closing that outlines the final terms, monthly payment, and closing costs of your loan.
LE – Loan Estimate: A document provided early in the process that gives an overview of estimated loan terms, payments, and closing costs.
More questions? We’re here to help.
Mortgage terms can feel confusing and you don’t have to learn them all at once. If you have questions about any of these terms or want help understanding how they apply to your situation, our mortgage team is happy to talk it through with you.
Reach out to our mortgage team when you’re ready. We’re happy to connect by phone or set up a time that works for you.