Essential Lending & Mortgage Terminology
Amortization
The structured process of extinguishing debt through scheduled, periodic installments combining principal reduction and compounding interest charges.
APR (Annual Percentage Rate)
The comprehensive annual cost of credit expressed as a percentage, reflecting both the nominal note rate and amortized lender closing fees.
DTI (Debt-to-Income Ratio)
The percentage of gross monthly income dedicated to contractual monthly debt payments. Lenders typically enforce a 43% ceiling for conforming loans.
LTV (Loan-to-Value Ratio)
The ratio of unpaid mortgage balance to the appraised property value. Conventional loans with an LTV exceeding 80% mandate Private Mortgage Insurance.
PMI (Private Mortgage Insurance)
A lender-protective insurance policy paid by borrowers who provide less than a 20% down payment on conventional financing.
Escrow Account
A fiduciary account maintained by loan servicers to collect and disburse property taxes and homeowners insurance on behalf of the homeowner.