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FAQs and Definitions

Adjustable-rate mortgage (ARM)

A type of mortgage that features a variable interest rate that is typically lower than that of fixed-rate mortgages, but can increase or decrease over time. Most ARMs start with a fixed period of five to ten years.


A process for paying off debt over time, with a portion of each payment going toward your mortgage principal and a portion toward interest. It means you pay more interest at the start of a mortgage and more principal at the end, as your balance goes down.

Cash-out refinance

A type of refinance loan where you can withdraw a lump-sum cash amount from your home’s equity.

Debt-to-income ratio

All your monthly debt payments divided by your gross monthly income.

Down payment

A lump sum payment made upfront to cover a percentage of the mortgage value.


The share of your home you own outright, through your down payment and monthly principal payments.

Fixed-rate mortgage

A type of mortgage that features the same interest rate and monthly payment for the entire loan term.

Interest rate

The rate charged on your mortgage loan based on your creditworthiness and other factors such as the loan type and loan amount. Mortgage interest payments are calculated monthly.

Loan term

The duration of a loan, in this case your mortgage. Most mortgages have 30-year, or sometimes 15-year, terms. Some lenders offer other options.

Loan-to-value ratio

The amount of money you want to borrow divided by your home’s appraised value.


A written statement from a lender saying that you’ve qualified for a home loan and specifying how much money the lender will allow you to borrow. It’s a more official estimate of what you could borrow, without entering into a contract, than a pre-qualification. This requires a hard credit inquiry (one that can affect your interest rate).


A lenders estimate of how much you’ll be able to borrow based on self-reported information about your income and credit, typically a ballpark estimate. This is considered a soft credit inquiry, so it won’t dent your credit score).

Rate-and-term refinance

A type of refinance loan that can lower your mortgage interest rate or shorten or extend the loan term.


A transaction that replaces your current mortgage with a new one featuring a different term, interest rate, or loan amount. This is done to either change the rate or term of the loan to lower payments, get out of debt quicker, or to pull cash out of the equity accrued in the home.

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