What does LTV mean in mortgages?

LTV stands for loan-to-value ratio. It is your mortgage balance divided by the property's appraised value. An 80% LTV means you owe 80% of what the home is worth and have 20% equity.

What is the difference between a mortgagor and a mortgagee?

The mortgagor is the borrower who pledges the property as collateral. The mortgagee is the lender who holds the lien. An easy way to remember: the mortgagor is the one who owes; the mortgagee is the one who is owed.

What does PITI stand for?

PITI stands for Principal, Interest, Taxes, and Insurance. These four components make up the total monthly housing payment that lenders use to calculate your front-end debt-to-income ratio.

What is SOFR and why does it matter for mortgages?

SOFR (Secured Overnight Financing Rate) is the benchmark rate that replaced LIBOR for adjustable-rate mortgages in the U.S. Your ARM's rate adjusts based on SOFR plus your loan's fixed margin.

Mortgage Terminology Dictionary: 80+ Terms Defined

The mortgage industry uses a dense vocabulary that can feel intimidating to borrowers who are new to the process. This glossary from Coventry Enterprises LLC Loans defines more than 80 key terms in plain language. Bookmark this page and return to it whenever you encounter an unfamiliar term during your home buying or refinancing process.

A

Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that changes periodically based on a benchmark index plus a lender margin. Typically has a fixed initial period (3, 5, 7, or 10 years) followed by annual or semi-annual adjustments.
Amortization: The process of paying off a loan through regular payments over time. Early payments are mostly interest; later payments are mostly principal. A 30-year loan fully amortizes in 360 monthly payments.
Annual Percentage Rate (APR): The total yearly cost of a loan expressed as a percentage, including the interest rate plus most lender fees. APR is broader than the note rate and is useful for comparing loans with different fee structures.
Appraisal: An independent professional assessment of a property's market value, required by most lenders to confirm the collateral supports the loan amount.
Assumable Mortgage: A loan that allows a buyer to take over the seller's existing mortgage, including its interest rate and remaining balance. VA and FHA loans are typically assumable; most conventional loans are not.

B

Balloon Payment: A large, final payment due at the end of a loan term. Balloon mortgages amortize over 30 years but become fully due after 5 or 7 years, requiring refinance or payoff at that point.
Basis Point: One hundredth of a percentage point (0.01%). Used to describe small changes in interest rates. A rate increase from 6.50% to 6.75% is a 25 basis point increase.
Bridge Loan: Short-term financing that bridges the gap between buying a new home and selling an existing one. Higher rates and fees than standard mortgages; typically repaid within 12 months.
Buy-Down (Rate Buy-Down): Paying discount points at closing to reduce the mortgage interest rate. A permanent buy-down lowers the rate for the life of the loan. A temporary buy-down (e.g., 3-2-1) reduces the rate for the first few years only.

C

Cap (Rate Cap): A limit on how much an ARM interest rate can change at a single adjustment or over the life of the loan. Common cap structures include initial, periodic, and lifetime caps (e.g., 2/2/5).
Clear Title: A property title that is free of liens, claims, or other encumbrances that could affect ownership rights. Lenders require clear title before funding a mortgage.
Closing Costs: Fees and expenses paid at the closing of a real estate transaction. Include lender fees, appraisal, title insurance, recording fees, and prepaid items. Typically 2 to 5% of the loan amount.
Combined Loan-to-Value (CLTV): The total of all loans secured by a property divided by the property's value. Used when a borrower has both a first mortgage and a second mortgage or HELOC.
Conforming Loan: A mortgage that meets Fannie Mae and Freddie Mac's purchase guidelines, including loan limits set annually by the FHFA. Conforming loans generally receive better rates than jumbo loans.
Conventional Loan: A mortgage not insured or guaranteed by a government agency such as FHA, VA, or USDA. Can be conforming or non-conforming (jumbo).

D

Debt-to-Income Ratio (DTI): Monthly debt obligations divided by gross monthly income. Lenders use both front-end DTI (housing costs only) and back-end DTI (all monthly debts). Most programs cap back-end DTI at 43 to 50%.
Due-on-Sale Clause: A provision in most conventional mortgage contracts requiring the loan to be paid in full when the property is sold or transferred. Prevents buyers from assuming the loan without lender approval.

E

Earnest Money: A deposit made by a buyer when submitting a purchase offer, demonstrating serious intent. Typically 1 to 3% of the purchase price; credited toward the buyer's down payment or closing costs at closing.
Encumbrance: Any claim, lien, easement, or liability on a property that may reduce its value or restrict its use. Mortgages, tax liens, and easements are all encumbrances.
Equity: The difference between a property's current market value and the total amount owed on all loans secured by it. Equity increases through appreciation and principal paydown.
Escrow: A neutral third-party account holding funds during a real estate transaction. Also refers to the account maintained by a mortgage servicer to collect and pay property taxes and insurance on the borrower's behalf.

F

FHA Loan: A mortgage insured by the Federal Housing Administration. Allows down payments as low as 3.5% and accepts lower credit scores. Requires both upfront and annual mortgage insurance premiums.
Fixed-Rate Mortgage: A mortgage with an interest rate that remains constant for the entire loan term. Monthly principal and interest payments never change.
Foreclosure: The legal process by which a lender takes possession of a property after the borrower fails to make required loan payments. Can result in public auction of the property to recover the outstanding debt.
Funding Fee (VA): A one-time fee charged on VA loans to fund the VA home loan guarantee program. Ranges from 1.25% to 3.3% of the loan amount depending on down payment and prior use. Can be financed into the loan.

G

Good Faith Estimate (GFE): A predecessor to the Loan Estimate under older RESPA rules. The GFE was replaced by the standardized Loan Estimate form in 2015 as part of TRID (TILA-RESPA Integrated Disclosure) rules.
Gross Income: Total income before taxes and deductions. Lenders use gross (pre-tax) income when calculating debt-to-income ratios.

H

Home Equity Line of Credit (HELOC): A revolving credit line secured by a property's equity. Borrowers draw funds as needed during the draw period and repay during the repayment period. Usually variable rate.
Homeowners Protection Act (HPA): Federal law requiring lenders to cancel PMI on conventional loans when the borrower's equity reaches 20 to 22% of the original property value, based on the original amortization schedule.
HUD (Department of Housing and Urban Development): The federal agency overseeing FHA loans, fair housing, and community development programs. The HUD-1 Settlement Statement was a closing document predecessor to today's Closing Disclosure.

I

Impound Account: Another term for an escrow account. Funds collected monthly with your mortgage payment to cover property taxes and homeowner's insurance when those bills come due.
Index: The benchmark interest rate used to calculate adjustments on an ARM. Common indices include SOFR, the Prime Rate, and the COFI. The new rate equals the index plus the lender's margin.
Interest Rate: The percentage of the loan balance charged annually as the cost of borrowing. Does not include lender fees (unlike APR). Also called the note rate or contract rate.

J

Jumbo Loan: A mortgage that exceeds conforming loan limits set by the FHFA. Cannot be purchased by Fannie Mae or Freddie Mac. Typically requires higher credit scores, larger down payments, and carries slightly higher rates.

L

Loan Estimate: A standardized three-page document lenders must provide within three business days of receiving a loan application. Shows loan terms, estimated monthly payment, and itemized closing costs.
Loan-to-Value (LTV): Your mortgage balance divided by the property's appraised value, expressed as a percentage. Lower LTV = more equity = lower risk = typically better rates.
Lock Period: The length of time a lender will honor a quoted interest rate. Common lock periods are 30, 45, and 60 days. Longer locks cost more.

M

Margin: A fixed percentage added to the ARM index to determine the new interest rate at each adjustment. For example, SOFR + 2.75% margin. The margin does not change over the life of the loan.
MIP (Mortgage Insurance Premium): Insurance required on FHA loans. Includes an upfront premium of 1.75% of the loan amount and an annual premium paid monthly. Provides FHA with funds to cover lender losses on defaults.
Mortgage: A legal agreement in which the borrower pledges real property as collateral for a loan. Also used loosely to refer to the loan itself.
Mortgagee: The lender in a mortgage transaction. The mortgagee holds the lien on the property.
Mortgagor: The borrower in a mortgage transaction. The mortgagor pledges the property as collateral.

N

Net Operating Income (NOI): For investment properties: total rental income minus operating expenses (not including mortgage payments). Used to evaluate rental property performance and to qualify for DSCR loans.
Non-Conforming Loan: A loan that does not meet Fannie Mae or Freddie Mac guidelines, either due to loan size (jumbo) or other criteria. Must be held on the lender's balance sheet or sold to private investors.
Note Rate: The interest rate stated in the promissory note, which is the actual rate charged on the loan balance. Same as the interest rate; different from APR.

O

Origination Fee: A lender charge for processing the loan application, evaluating the file, and preparing loan documents. Typically 0.5 to 1% of the loan amount, though structures vary widely by lender.

P

PITI: Principal, Interest, Taxes, and Insurance. The four components of a typical monthly mortgage payment. Some lenders add HOA dues to get PITIA.
PMI (Private Mortgage Insurance): Insurance required on conventional loans with less than 20% down. Paid by the borrower to protect the lender. Can be cancelled once equity reaches 20% of the original value.
Points: Prepaid interest charged at closing to reduce the mortgage rate. One point = 1% of the loan amount. Also refers to origination points, which are lender compensation rather than a rate reduction.
Pre-Approval: A lender's conditional commitment to lend up to a specific amount based on verified income, assets, and credit. More reliable than pre-qualification and required by many sellers before accepting an offer.
Pre-Qualification: A preliminary assessment of how much you might borrow based on self-reported information, without document verification or a hard credit pull. Less reliable than pre-approval.
Prepayment Penalty: A fee charged for paying off a mortgage early or making extra principal payments above a certain amount. Rare on residential mortgages today but still found on some non-QM and private loans.
Principal: The outstanding loan balance, not including interest. Each monthly payment reduces the principal by a small amount. At payoff, the principal balance reaches zero.

R

Rate Lock: A lender's commitment to hold a quoted interest rate for a specified period. Protects borrowers from rate increases while their loan is being processed.
Refinance: Replacing an existing mortgage with a new loan, usually to obtain a lower rate, change the term, or access equity. Involves a full new application and closing.
RESPA (Real Estate Settlement Procedures Act): Federal law governing the closing process for residential mortgages. Requires disclosure of closing costs (Loan Estimate and Closing Disclosure) and prohibits kickbacks among settlement service providers.
Reverse Mortgage: A loan available to homeowners age 62 or older that converts home equity into loan proceeds. No monthly payments required; the loan becomes due when the borrower moves, sells, or passes away. Most common type is the FHA-insured HECM.

S

SOFR (Secured Overnight Financing Rate): The benchmark interest rate that replaced LIBOR as the primary index for adjustable-rate mortgages in the U.S. Based on overnight Treasury repurchase agreement transactions.
Short Sale: A sale of a property for less than the outstanding mortgage balance, with the lender's approval. Used to avoid foreclosure when the home is "underwater." Lender accepts a loss on the remaining balance.

T

Title: Legal ownership rights to a property. A clear title means no other party has a valid claim against the property. Title defects can include unpaid liens, easements, or errors in prior conveyances.
Title Insurance: One-time premium insurance protecting against losses from title defects discovered after closing. Lender's title insurance is required; owner's title insurance is optional but strongly recommended.
Title Search: An examination of public records to verify the legal ownership of a property and identify any liens, claims, or encumbrances on the title. Performed before closing by a title company or attorney.
TILA (Truth in Lending Act): Federal law requiring lenders to disclose the true cost of credit in a standardized way. Mandates disclosure of APR, finance charges, total payments, and other loan terms before the borrower is obligated.

U

Underwriter: The individual at a lending institution who reviews loan applications, verifies documentation, assesses risk, and makes the final decision to approve, deny, or conditionally approve a mortgage.
Underwriting: The process of evaluating a loan application by verifying income, assets, credit history, and the property's value. Underwriting determines whether a loan meets program guidelines and what conditions must be satisfied.
USDA Loan: A government-backed mortgage guaranteed by the U.S. Department of Agriculture for eligible rural and suburban properties. Offers zero down payment for qualifying borrowers within income limits.

V

VA Loan: A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses. Features include zero down payment, no PMI, competitive rates, and a one-time funding fee.

This glossary reflects the most common terms you will encounter when working with Coventry Enterprises LLC Loans or any mortgage lender. The mortgage industry continues to evolve, and new products and terms emerge over time. Always ask your lender to explain any term you do not recognize.