Mortgage Terms, Simplified.

Absolute Life

That feeling when your mortgage process is simple, smooth, and stress-free, and you finally feel free to live your best life.

Amortization

This is how your mortgage gets paid off over time. Each monthly payment goes toward both interest and your loan balance (called the principal), slowly reducing what you owe until the loan is fully paid off.

Annual Percentage Rate (APR)

APR is the total yearly cost of your loan, including your interest rate and certain lender fees. It helps you compare loan offers side by side, so you can see the full picture — not just the interest rate.

Application Fee

This is a one-time fee you might pay when applying for a mortgage. It covers the lender’s time and costs to review your loan application and pull credit, but not all lenders charge it.

Balloon Loan

With a balloon loan, you make smaller monthly payments at first, but you’ll owe a large lump sum at the end of the loan term. It can be risky unless you know you’ll be selling or refinancing before the balloon payment comes due.

Closing Costs

These are the fees and expenses you pay to finalize your home purchase or refinance. They can include lender fees, title services, taxes, insurance, and escrow funds. You’ll typically pay them at the closing table, but sometimes sellers can help cover the cost.

Convertible Adjustable-Rate Mortgage

This type of loan starts with a fixed rate but gives you the option to switch to an adjustable rate later. It offers flexibility if you think rates will drop or your financial situation will change down the road.

Debt To Income Ratio

DTI compares your monthly debt payments (including your future mortgage) to your gross monthly income. Lenders use this number to see how much mortgage you can realistically afford without becoming financially stretched.

Equal Credit Opportunity Act

This federal law protects your right to fair lending. It prevents lenders from denying credit based on race, gender, age, marital status, religion, or national origin, because everyone deserves equal access to credit.

Fannie Mae

Fannie Mae is a popularly used acronym for the Federal National Mortgage Association (FNMA).

Federal Housing Administration (FHA)

The FHA is a governmental agency that operates, oversees, and monitors a wide variety of home loan programs and initiatives. FHA loans are known to carry low-interest rates and require minimum down payments.

Freddie Mac

This acronym stands for Federal Home Loan Mortgage Corporation Housing. 

Index

An index is a financial benchmark used to set interest rates for adjustable-rate mortgages. If your loan has a variable rate, the index helps determine when and how your rate can change.

Interest Rate Ceiling

Fixated by regulatory authorities, the interest rate ceilings provide the highest interest rate that a lender can charge for any adjustable-rate mortgage offered. It represents the maximum income cap and profit margins for lenders.

Interest-Only Loan

This is a type of mortgage that requires you to repay only the interest that accrues on the loan balance at each payment period (usually per month). This means that the outstanding balance does not decline with each payment.

Mortgage Acceleration Clause

A clause in the mortgage agreement that enables the lender to demand the entire balance of the loan to be repaid as a lump sum payment in the event the house is sold or refinanced. The clause also applies in the instant that the borrower defaults or where the title of the property changes hands.

Origination Fee

A one-time fee charged by the lender for processing your mortgage. It covers things like underwriting, document prep, and loan setup. It also helps pay the people working behind the scenes to get you to closing.

Points

Points are associated with your interest rate. You can pay “points” – or a certain dollar amount – to get a lower interest rate. This is also known as “buying down the rate.” More simply, you can pay a fee to get a lower rate than what the current market is offering.

Private Mortgage Insurance (PMI)

If your down payment is less than 20%, you may have to pay PMI. It’s added to your monthly mortgage payment and protects the lender in case you stop making payments. Once you build up enough equity, PMI can often be removed.

Qualifying Ratios

These are formulas lenders use to decide how much home you can afford. They look at your income, debts, and housing expenses to make sure the loan is a safe fit for your budget.

Rate Lock

When you lock your rate, it means your interest rate won’t change before closing — even if rates in the market go up. Your Loan Officer will help you decide the best time to lock it in based on the market and your timeline.

Treasury Index

This index is tied to U.S. Treasury securities and is often used to set the interest rate on adjustable-rate mortgages. If your loan is tied to this index, your rate may go up or down based on how the market moves.