20 Words to Understand Mortgage Terminology

Have you ever been at a table with friends who were discussing money, loans, and mortgages? Have you ever sat there and had no idea what they were talking about? Now that we’ve mentioned loans and mortgages, it’s time to take a deeper look into the specific words that are commonly used in financial situations.

Read on to discover the twenty mortgage-related terms you should learn today.


Amortization is the process of reducing debt through recurring loan payments. Some mortgages do not fully amortize, leaving you with debt.

Closing Disclosure

A closing disclosure describes mortgage financing. It includes information about loan terms, monthly payments, and mortgage costs.


Co-borrowers share the repayment of a mortgage with you. If you default, this person must pay any missed payments as well as the full sum. A co-borrower is referred to as a non-title holder or non-homeowner in some mortgage programs. Having a co-borrower protects your lender.

Debt-to-Income Ratio

The debt-to-income ratio is the monthly debt payments divided by the gross monthly income. This assists lenders in determining your ability to repay debt.


Equity is the value of your home less any mortgages.


Your mortgage company establishes an escrow account for taxes and insurance. The monthly payment has arrived. You pay property charges immediately if there is no escrow.

Fannie Mae

The government-sponsored Fannie Mae (The Federal National Mortgage Association) guarantees mortgages in order to increase access to credit.


When a homeowner fails to make payments, the lender or servicer initiates foreclosure proceedings. Before foreclosure, lenders and servicers must notify debtors. When a foreclosure happens, federal guidelines govern.

Freddie Mac

The government-backed Freddie Mac (Federal Home Loan Mortgage Corporation) helps to stabilize the housing market. It purchases mortgages from banks and other lenders.

Home Equity Line of Credit (HELOC)

A HELOC borrows against the equity in your home. Equity is the value of a home less the mortgage. Variable-rate home equity lines of credit are not the same as loans. Most HELOCs require specific checks or a credit card to be used, and you can borrow money for a certain period of time (the “draw period”). 

Minimum payments are required throughout the “draw period.” Your balance may be due immediately or in installments after the “draw period.” Foreclosure can result from a HELOC default.

Home Equity Loan (HEL)

The equity in your home serves as collateral for a HEL, which you can receive as a lump-sum. Home equity loans have a fixed rate. If you are unable to repay the HEL, the lender may foreclose.

Initial Escrow Deposit

You will pay an initial escrow deposit at closing, if your lender requests it.

Interest-Only Loan

Fixed-rate interest-only mortgages require interest payments for a defined period of time.

Interest Rate Capacity

An annual cap is the maximum annual interest rate increase on an ARM (adjustable rate mortgage), even if the rate would have risen more if market conditions were different. The new rate cannot exceed the ceiling.

Jumbo Loan

A jumbo loan is the maximum loan amount set annually by Fannie Mae, Freddie Mac, and the FHFA.

Lender’s Title Insurance

A lender’s title insurance safeguards your lender against title concerns such as a lawsuit. Only the lender is covered by title insurance.

Loan-to-value (LTV) Ratio

LTV compares the mortgage to the value of the property, and is reduced when down payments are higher. LTV assists lenders in determining whether to lend to you and demand PMI (private mortgage insurance).


Refinancing entails obtaining a new loan to get a lower interest rate and decrease monthly payments, or borrow more money. 

Origination Fee

Origination fees include application processing, underwriting, finance, and administrative services.

Reverse Mortgage

Reverse mortgages allow anyone over the age of 62 to borrow against their home equity. Instead of repaying debt, you can access money from your lender. The loan balance grows when interest and payments are made.


Now that you know the simple definition of these mortgage terms, you won’t ever have to feel left out again. Another advantage of learning these terms is that you can discuss these extensively with your lender. In just twenty words, you can gain a better understanding of mortgage terminology!

If you’re searching for Century City homes for sale, Century City Mortgage can assist you with financial support and educate you on all personal money matters. Contact us today and begin your lending journey with us!

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