Mortgage Glossary
Last updated August 24, 2026
The full working vocabulary of a mortgage, in plain English — 53 terms across
rates, loan types, costs, qualifying, the paperwork, and refinancing. Every definition is neutral and
self-contained, so quote any of them; each has its own link (e.g. /glossary.html#par-rate).
Rates & pricing
Note rate (interest rate)
The rate that sets your monthly principal-and-interest payment. It ignores fees and points — which is exactly why two loans at the same note rate can cost very different amounts once fees are counted.
APR (Annual Percentage Rate)
The yearly cost of the loan as a rate, folding in the note rate plus points, most lender fees, and mortgage insurance, spread over the term. Always ≥ the note rate; built to compare offers with different fees — but it assumes you keep the loan to term. See APR vs. rate.
Par rate
The rate a lender offers at zero points and zero lender credit — neither bought down nor marked up. RallyRates benchmarks the par rate so comparisons aren't distorted by points.
Basis point (bp)
One hundredth of a percent (0.01%). Rates and pricing move in basis points; 25 bps is a quarter percent (0.25%).
Discount points
An upfront fee to lower your note rate. One point costs 1% of the loan and typically buys the rate down by roughly an eighth to a quarter percent. Worth it only past the break-even — see are points worth it?
Lender credit
The mirror image of points: you accept a slightly higher rate and the lender pays some of your closing costs. Useful when you’re short on cash to close or won’t keep the loan long.
Temporary buydown (2-1)
A prepaid subsidy that lowers the rate for the first year or two (a 2-1 buydown starts 2% below, then 1% below, then hits the note rate) — distinct from points, which lower the rate permanently.
LLPA (Loan-Level Price Adjustment)
A pricing add-on based on your file — credit score, LTV, loan type, property type, occupancy. LLPAs are the machinery that turns a lender’s headline rate into your rate. See reading a rate sheet.
Rate lock
A lender's commitment to hold a quoted rate for a set window (often 30–60 days) while you close. Longer locks price a little higher. Until you lock, the quote moves with the market.
Float / float-down
Leaving the rate unlocked so it moves with the market. A float-down is a feature on some locks that lets you capture a lower rate if the market drops after you’ve locked, usually for a fee.
MBS (mortgage-backed securities)
Home loans bundled and sold to investors. What investors will pay for MBS sets the base rate lenders can offer — which is why mortgage rates track the bond market. See how rates are set.
Loan types
Conforming loan
A loan that fits Fannie Mae / Freddie Mac size limits and rules, so it can be sold into the agency market. Usually the lowest rates; the 30-year conforming rate is the market's headline number.
Conforming limit / high-balance
The maximum size for an agency loan (set annually). Expensive counties get a higher “high-balance” limit that prices a touch above standard conforming.
Jumbo loan
A loan above the conforming limit. Because it can't be sold to the agencies, pricing and qualification depend on the individual lender — sometimes cheaper than conforming, often not.
FHA loan
Government-insured, low-down-payment (as little as 3.5%), more forgiving on credit — but it carries MIP, often for the life of the loan.
VA loan
For eligible veterans and service members: no down payment, no monthly mortgage insurance, and a one-time funding fee. Among the strongest programs available.
USDA loan
Zero-down financing for eligible rural and some suburban areas, subject to income limits. Backed by the U.S. Department of Agriculture.
ARM (adjustable-rate mortgage)
Fixed for an intro period (e.g., 5 years) then adjusts periodically by an index plus a margin, within caps that limit each change and the lifetime rate. Lower to start, uncertain later.
Non-QM loan
A loan outside the standard “qualified mortgage” rules — e.g., bank-statement loans for the self-employed or investor DSCR loans. More flexible qualifying, priced higher for the added risk.
HELOC / home-equity loan
Borrowing against your equity as a second lien — a revolving line (HELOC) or a lump-sum second mortgage. Rates and terms differ from a first mortgage.
Costs, fees & insurance
Closing costs
The fees to originate and close — lender, title, escrow, recording, and prepaids — typically about 2–5% of the loan amount.
Cash to close
The total you actually bring to closing: down payment plus closing costs, minus any lender or seller credits and your earnest-money deposit.
Origination fee
What a lender charges to make the loan (processing, underwriting, sometimes a percent of the balance). Part of closing costs, and part of what APR captures that the note rate doesn't.
PMI (Private Mortgage Insurance)
Insurance a conventional lender requires when your down payment is under 20% (LTV above 80%). It protects the lender, not you, and generally falls off around 20–22% equity.
MIP (Mortgage Insurance Premium)
The FHA equivalent of PMI — an upfront premium plus an annual one. Unlike PMI, FHA MIP often lasts the life of the loan, a big reason an FHA loan's APR can sit well above its note rate.
Funding fee / UFMIP
The upfront charge on government loans in place of monthly MI: the VA funding fee or FHA's upfront MIP (UFMIP). Often financed into the loan.
Prepaid interest (per diem)
Daily interest from your closing date to the end of that month, collected at closing. Close late in the month and you owe less of it.
Escrow / impounds
An account your servicer uses to collect property taxes and homeowners insurance with your payment, then pay those bills for you — the “T” and “I” in PITI.
Title insurance
A one-time policy protecting against defects in ownership or undisclosed liens. The lender's policy is required; an owner's policy (optional) protects your equity.
Seller concessions
Closing-cost help the seller agrees to pay on your behalf, capped by loan program and occupancy. A common way to reduce cash to close.
Qualifying
LTV (Loan-to-Value)
The loan divided by the home's value, as a percent. $300,000 on a $375,000 home is 80% LTV. Lower LTV means less lender risk and better pricing; above 80% typically triggers PMI.
CLTV (Combined LTV)
All loans against the home — first mortgage plus any second or HELOC — divided by value. Lenders cap CLTV, so a second lien can limit how much you can borrow.
DTI (Debt-to-Income ratio)
Monthly debt payments divided by gross monthly income. Lenders weigh a front-end ratio (housing only) and back-end (all debts); the rule of thumb is 28% / 36%, though many programs allow more.
FICO / credit score
The score that sets your pricing tier and eligibility. Even a 20-point move can change your LLPAs and your rate — one of the few inputs you can improve before applying.
Reserves
Months of housing payments you can document as left over after closing. Some programs (and jumbo loans) require several months' worth.
Gift funds
Down-payment money gifted, usually by family, documented with a gift letter showing it isn't a loan. Allowed on most primary-residence programs.
AUS (DU / LPA)
The automated underwriting engines — Fannie Mae's Desktop Underwriter and Freddie Mac's Loan Product Advisor — that render an initial approval and set documentation conditions.
Process & paperwork
Loan Estimate (LE)
The standardized three-page quote a lender must give within three business days of your application. Compare LEs side by side — not verbal quotes.
Closing Disclosure (CD)
The final terms and itemized costs, which you must receive at least three business days before closing so you can check them against your LE.
TRID
The federal rule (“Know Before You Owe”) that requires the Loan Estimate and Closing Disclosure and their three-day windows.
Appraisal
An independent estimate of the home's value that the lender relies on. A low appraisal (an “appraisal gap”) can mean bringing more cash or renegotiating the price.
Underwriting
The lender's verification of income, assets, credit, and collateral. It ends in a conditional approval and then “clear to close.”
Note & Deed of Trust
The two core documents: the note is your promise to repay; the deed of trust (or mortgage) gives the lender a claim on the home if you don't.
Refinancing & payoff
Rate-and-term refinance
Replacing your loan with a new one for a better rate or term, taking no cash out. The break-even on closing costs decides whether it pays.
Cash-out refinance
A new, larger loan that returns some equity to you as cash. Priced higher than a rate-and-term refi because the lender is taking on more.
Streamline / IRRRL
Low-documentation government refinances — the FHA Streamline and the VA IRRRL — that skip much of the usual paperwork to lower your rate.
Recast
A large principal payment that re-amortizes the loan to a lower monthly payment while keeping your existing rate and term — cheaper than refinancing when you already have a good rate.
Break-even
The number of months for savings (from a refinance or from paying points) to repay the upfront cost. The core test for both — see are points worth it?
Amortization
How a fixed loan is paid off over time — early payments are mostly interest, later ones mostly principal. Our calculator shows the year-by-year schedule.
Prepayment penalty
A fee for paying the loan off early. Rare on today's owner-occupied mortgages, but still seen on some non-QM and investor loans — always check.
Benchmarks
OBMMI
The Optimal Blue Mortgage Market Indices — daily benchmarks built from actual locked rates across a large share of U.S. lenders. The spine of our benchmark because it reflects rates people really got, not advertised teasers.
PMMS
Freddie Mac's weekly Primary Mortgage Market Survey — the long-running headline average often quoted as “the 30-year rate.” Weekly and survey-based, so it lags daily moves.
RallyRates Index
Our neutral, par-based benchmark for the 30-year conforming market, published with source and date so anyone can cite it. It excludes point-bought rates so the number isn't flattered by fees.
Ready to see real numbers? Our live rate
board puts these terms to work, and the calculator is
free with no email.
By L.W. Martin, Founder — 20 years in the mortgage business, including 15 running his own brokerage. About → · Updated August 2026.