Mortgage Glossary

Whether you’re a first-time homebuyer or a third-time refinancer, you’re likely to come across some terms in your home loan process that need clarification. We think jargon has no place in the homeownership journey, so we created this helpful glossary to fill you in on every term you need to know—from covering what a real estate agent actually does, to what closing means, and more.

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) is a loan that offers an initial period of fixed interest that then resets at a specified interval. Typically, you'll see an ARM expressed as two numbers. For example, a 5/1 ARM has a fixed interest rate for the first 5 years that then adjusts based on market rates every year after that. An ARM tends to have a lower initial interest rate than a fixed-rate mortgage. However, it does come with a certain amount of unpredictability. That's because when an ARM enters its adjustable period, its interest rate may trend up or down depending on the state of the market.


Amortization is the process of paying off the principal and interest on your loan. You may see it expressed as an amorti-zation schedule—essentially an outlook of every payment you need to make until you've paid off the balance of the loan.

Annual Percentage Rate (APR)

The annual percentage rate (APR) is your interest rate plus ancillary charges and fees—such as closing costs and discount points- expressed as a yearly rate. By law, a loan's APR is always expressed as a percentage next to the interest rate. The APR gives the best indication of the total cost of your mortgage.


An appraisal is an unbiased estimate of your property's fair market value by a licensed professional. It's something that is typically required by all lenders during the mortgage process to ensure that the loan amount does not exceed the value of the home. A property's appraisal is based on a number of factors—including location, condition, and sales of similar homes in the area.


Appreciation is the increase in the value of your home over time. It can be affected by all kinds of events—from property renovations to changes in the housing market.

Basis Points or BPs

Basis points (also known as BPs, and pronounced as "bips") are a unit of measurement. They're equal to 1 one-hundredth of one percentage point (0.01%)—one permyriad if we really want to get technical. Basis Points are used to remove any kind of ambiguity when referring to the specifics of an interest rate.

Cash Reserve

A cash reserve (also known as a mortgage reserve) is the "rainy day" savings you've set aside for emergencies—such as the loss of a job. Lenders typically require you to have 2 months of mortgage payments on hand in case of emergency.

Cash to Close

Cash to close is the total amount needed to bring to the closing attorney's office on closing day. It typically includes down payment, fees, pre-paid taxes, homeowner's insurance, and any homeowners association fees that may be applicable. Cash to close is usually paid in the form of a wire transfer or a certified bank or cashier's check.