Mortgage Glossary & Financing Definitions
Clear vocabulary is essential for financial navigation. Review standard terminology used by underwriters and loan originators.
Amortization
The schedule of systematic loan repayment over a set duration, where payments are divided into monthly interest charges and principal paydown.
Closing Costs
Processing and administrative fees paid to underwriters, title entities, assessors, and local recording registers to execute a mortgage. Typically 2% to 5% of home price.
Debt-to-Income (DTI) Ratio
A core underwriting metric dividing monthly recurring debts by gross monthly income. Capped traditionally at 36% for standard conventional financing.
Escrow Account
A holding account managed by the mortgage servicer that collects monthly property tax and homeowners insurance allocations, paying municipal invoices upon renewal.
Loan-to-Value (LTV) Ratio
A risk evaluation ratio dividing the outstanding mortgage balance by the assessed appraisal value of the property. Lenders require PMI on LTVs exceeding 80%.
Origination Fee
An upfront processing fee charged by lenders to underwrite, check, and establish a new mortgage loan. Usually expressed as points or percentages of principal.
Points (Discount Points)
Upfront fees paid directly to the mortgage lender at closing in exchange for an interest rate reduction. One point equals 1% of the total loan amount.
Private Mortgage Insurance (PMI)
A private insurance policy protecting the conventional lender against borrower default. Mandatory for conventional loans with down payments below 20%.
Refinancing
The process of replacing an active mortgage loan with a new debt agreement, typically deployed to capture lower interest rates, modify term durations, or cash-out home equity.