We know mortgage speak can get thick. Here’s a quick guide to cutting through the confusion.


Maximum Cash Out

The maximum amount of money you can get back from your mortgage transaction based on the loan information provided and the amount of equity you have in your home.

Maximum Monthly Payment

The largest mortgage payment for which you qualify based on the information you provided. The maximum payment includes the four major components of a typical mortgage payment: taxes, insurance, loan principal, and interest.

Monthly Mortgage Payment

The amount you pay toward your mortgage debt each month. If you have an escrow account, your mortgage payment probably contains four parts: principal, interest, taxes, and insurance. If you don’t have an escrow account, then your monthly mortgage payment likely consists of only principal and interest.

Mortgage Bankers Association

The Mortgage Bankers Association (MBA) is a national organization that represents the real estate finance industry. All aspects of real estate finance hold membership in the MBA, including mortgage companies, mortgage brokers and commercial banks. The MBA promotes fair lending practices and works to ensure that residential and commercial real estate markets are healthy.

Mortgage Broker

An individual or company that arranges financing for borrowers. A mortgage broker matches lenders with borrowers who meet the lenders’ criteria. Mortgage brokers don’t fund loans, but they do receive payment from lenders for their services.

Mortgage brokers can be helpful in finding a good loan, but you will pay more in both fees and interest rates if you use a broker.

Mortgage Insurance (PMI)

Private mortgage insurance (PMI) protects your lender if you default on your loan. With conventional loans, you’re generally required to pay PMI if you make a down payment of less than 20% of the home’s appraised value. FHA and VA loans have different insurance guidelines. PMI payments are generally included in your monthly mortgage payment.

Mortgage Payoff

The act of paying down your loan’s principal balance. Early loan payoff can save you money that otherwise would have gone to interest.



A certified witness who validates signatures on official documents. Notaries must obtain licensing and become certified in the state where they are employed. A notary can authenticate the signing of contracts between individuals and the government, or between two individuals. For example, a notary would verify the signatures on a deed.


A legal document that obligates you to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage, a deed of trust, or another security instrument.


Per Diem Interest

Per diem interest is interest calculated per day. Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.

Piggyback Mortgage

A second mortgage or home equity loan that closes at the same time as the first mortgage. Homeowners sometimes use a piggyback mortgage to lower the loan-to-value ratio of the first loan, enabling them to avoid paying private mortgage insurance.

PITI Reserves

The acronym PITI stands for principal , interest , taxes and insurance, and it refers to the amount of liquid assets you must have on hand after you make a down payment. These “reserves” cover a specific number of months (variable based on the terms of your loan) of monthly mortgage payments, which includes the principal, interest, property taxes and any mortgage insurance. This means that you shouldn’t scrape together every last bit of cash you need to make a down payment—you’ll need to prove that you can actually start making your mortgage payments, too.


Also known as discount points or mortgage points, points are a way to reduce your interest rate by paying more out of pocket at closing. Each point is 1% of your loan amount, and each point lowers the interest rate by a small amount. The exact amount of interest rate reduction you’ll get for each point varies by lender and over time based on market conditions. If interest rates are already low, you may not get as much of a reduction for each point as you would in a situation where interest is relatively high. This is essentially the inverse of discount points.


Pre-approval is the process of determining how much money a prospective home buyer or refinancer is eligible to borrow prior to applying for a loan. If you’re getting pre-approved, your lender will ask about your income and assets and check your credit.

Prepaid Expenses

Taxes, insurance, and assessments paid in advance of their due dates. These expenses are included in your closing costs.

Prepaid Interest

Interest that’s paid at closing. When you get a mortgage, you’ll usually pay prepaid interest to cover interest charges that accrue between your closing date and the period covered by your first payment.


The full or partial repayment of your loan’s principal balance before the contractual due date. The most popular form of prepayment is through refinancing to lock in a lower interest rate. Some lenders will attach prepayment penalties to loans in exchange for a lower interest rate to discourage borrowers from refinancing.


The process of finding out how much money you can likely afford to borrow. Mortgage prequalification is based on several factors, including how much income you have and how much in liquid assets and liabilities you have. Prequalification occurs before you actually apply for a loan and gives you an estimate of what you could afford.


When you borrow money and are charged interest (such as with a mortgage, personal loan or credit card), you end up with two different types of debt: the principal, or the original amount you borrowed, plus the interest. Paying off the principal is essential because that is the amount from which your interest gets calculated. If you want to make extra payments on your mortgage, make sure it gets applied to your principal rather than just paying off interest.


The part of the loan’s balance still owed to the lender, or the loan amount borrowed from the lender, excluding interest.

Private Mortgage Insurance (PMI)

PMI is required for most loan programs that don’t require a full 20% down payment . The cost of this insurance is often built into a homeowner’s monthly mortgage payment. It is an extra expenditure every month, but it also makes homeownership more accessible for buyers who don’t have a lot of liquid assets to make a significant down payment.

Property Taxes

Property taxes, also known as real estate taxes, are assessed on your property by your local government (e.g., city, county, village or township) for the various services provided to you. When you pay property taxes each year, you’re paying for necessities such as police and fire department services, garbage pickup and snow removal.

Purchase Agreement

A purchase agreement, also known as an agreement of sale or sales agreement, is a contract between a buyer and a seller that states the terms and conditions for the sale of a property. This document states the purchase amount and may also include stipulations such as which appliances stay in the house and when the buyer will take possession of the home.