Glossary
Mortgage terms, explained.
Mortgages come with a lot of jargon. Here are the most common terms in plain language — no fine print required.
- Amortization
- The total length of time it takes to pay off your mortgage in full, commonly 25 years. A longer amortization means lower payments but more interest over time.
- Term
- The length of your current mortgage contract (often 1–5 years), after which you renew or renegotiate. Different from amortization.
- Fixed rate
- An interest rate that stays the same for the entire term, giving you predictable payments.
- Variable rate
- A rate tied to the lender’s prime rate that can move up or down during your term, changing your interest cost or payment.
- Stress test
- A qualifying rule requiring you to prove you can afford payments at a higher rate than your contract rate, ensuring you can handle increases.
- Default insurance
- Required when your down payment is under 20%. It protects the lender if you default and allows you to buy with a smaller down payment.
- Pre-approval
- A lender’s conditional commitment to lend you a set amount at a held rate, based on a review of your finances.
- Prepayment privilege
- The amount you’re allowed to pay above your regular payments each year without penalty, helping you pay off your mortgage faster.
- HELOC
- A Home Equity Line of Credit — a revolving credit line secured against your home’s equity that you can draw from as needed.
- Refinance
- Replacing your existing mortgage with a new one, often to access equity, consolidate debt, or change your rate or terms.
- Renewal
- Renewing your mortgage with your current lender at the end of your term. It’s the ideal time to shop for a better rate.
- Closing costs
- One-time costs to finalize a purchase — land transfer tax, legal fees, title insurance, and adjustments — typically 1.5–4% of the price.