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27 Mortgage Terms, Plus What 40% Of Americans Don’t Know About Their Loan

Hanna Kielar11-minute read

July 24, 2023


Remember when you sat through your first required foreign language class in school and the vocabulary seemed so out of reach? Learning mortgage terms during the home buying process can feel a little bit like that. With enough practice, though, eventually you’ll be at the front of the class with the star pupil (your Home Loan Expert) chatting conversationally about your mortgage.

In 2021, we asked 2,000 Americans which home buying terms they understood. Unsurprisingly, those with the most experience in the home buying and selling market are the most familiar with mortgage terms. The more surprising group is the people who reported not knowing any terms at all. Here are some highlights of our findings:

  • 40% of those surveyed didn’t know any home buying terms.

  • People ages 25 – 34 were the least likely to know any home buying terms.

  • “Amortization” was the most confusing mortgage term for those surveyed, and “down payment” was the least confusing.

Table Of Contents

    40% Of Respondents Don’t Know Mortgage Terminology

    We asked Americans which of these common home buying terms they confidently understand:

    • Down payment
    • Closing costs
    • Annual percentage rate (APR)
    • Escrow
    • Earnest money deposit
    • Amortization

    Demographically, older people might understand different home buying terms better than others. Baby boomers typically know mortgage terms as they tend to have more experience with home buying since they’re statistically more likely to have purchased, sold and downsized a home in their lifetime.

    Although people within the Gen Z demographic are further away from the home buying process compared to older generations, their millennial counterparts were typically 4% less familiar with common mortgage terms than them.

    • People aged 25 – 34 are the least likely to know home buying terms.

    • People aged 65+ are the most familiar age group with mortgage terminology.


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    Knowledge Of ‘Down Payment’ By Age Group

    People in the majority of the age groups understood what a “down payment” was, followed by knowledge of the terms “closing costs” and “annual percentage rate (APR).”

    • Only 9% of people ages 18 – 24 knew what a “down payment” is.

    • 34% of people ages 25 – 44 were familiar with the term “down payment.”

    • 18% of people ages 45 – 54 knew what a “down payment” is.

    • 39% of people aged 55+ knew the term “down payment.”

    Most Confusing Mortgage Terms

    Only 31% of Americans could confidently say they understood the term “amortization.” A close second, only 34% of Americans knew what an “earnest money deposit” meant for their wallet.

    Bar Graph titled "Which Home Buying Terms Confuse People The Most?"

    Out of the home buying terms used in our survey, five out of six terms confused over 50%of Americans. Here’s how different demographics felt about the most confusing term of the survey:

    • People ages 55 – 64 were the most familiar with the term “amortization” compared to other age groups.

    • Gen Z was the least familiar with the term, with only 7% of people ages 18 – 24 reporting that they knew what it meant.

    Glossary Of Mortgage Terms

    How does your knowledge of mortgage terms stack up compared to the survey respondents? Brush up on these 27 common terms in mortgage lending prior to securing a loan to move through the process seamlessly and with confidence.

    Adjustable-Rate Mortgage (ARM)

    An adjustable-rate mortgage (ARM) is a type of loan with an interest rate that varies depending on how market rates move. When you sign up for an ARM, you first get a short period of fixed interest. This is the introductory period of the loan and can last for up to 10 years.

    During your introductory period, your interest rate is usually lower than what you’d get with a fixed-rate loan. After the introductory period expires, your interest rate will follow market interest rates – you’ll often see this referred to as a variable or floating interest rate. ARMs have caps in place that limit the total amount that your interest can rise or fall over the course of your loan.


    Home loan amortization is the process of how payments spread out over time. When you make a payment on your mortgage, a percentage of your payment goes toward interest and a percentage goes toward your loan principal.

    In the beginning of your loan, your principal is high and most of your payment goes toward interest. However, you chip away at your principal over time and pay less in interest. An amortization schedule can reflect consistent monthly payments and keep you on track to pay off your loan within the mortgage term.

    Annual Percentage Rate (APR)

    Annual percentage rate (APR) is the interest rate you’ll pay on your loan annually plus any additional lender fees. You’ll usually see APR expressed as a percentage. You may see two interest rates listed when you shop for a loan. The larger number is always your APR because it includes fees.


    An appraisal is a rough estimate of how much your home is worth. Mortgage lenders require that you get an appraisal before you sign on a home loan. The appraisal assures the lender that they aren’t loaning you more money than what your home is worth. Your lender may help you by scheduling an appraisal, done by an independent third party.


    In the context of a mortgage, an asset is anything that you own that has a cash value. Some examples of assets include:

    • Checking and savings accounts
    • 401(k) and IRA accounts
    • Certificates of deposit (CDs)
    • Stocks
    • Bonds
    • Mutual funds

    When you apply for a mortgage, your lender will want to verify your assets. This is to ensure that you have enough money in savings and investments to cover your mortgage if you run into a financial emergency.

    Balloon Loan

    A balloon loan, or balloon mortgage, gets its name from the large size of its payment. It’s a type of financing that requires a lump sum to be paid at some point in the mortgage term – most commonly, at the end. With a balloon loan, you choose to pay an interest-only mortgage or one that includes both principal and interest payments. Interest-only mortgages only require you to pay the cost of interest throughout your term with the entire balance due at the end.

    Closing Costs

    Infographic for Closing Costs definition.

    Closing costs are settlement costs and fees you pay to your lender in exchange for finalizing your loan. Some common closing costs include appraisal fees, loan origination fees and pest inspection fees. The specific costs you’ll need to cover depend on your location and property type. Closing costs usually equal around 3% – 6% of the total value of your loan.

    Closing Disclosure

    A Closing Disclosure is a document that tells you the final terms of your loan. This document includes your interest rate, loan principal and the closing costs you must pay. Your lender is legally required to give you at least 3 days to review your Closing Disclosure before you sign on your loan.

    Debt-To-Income (DTI) Ratio

    Your debt-to-income ratio is equal to your total fixed, recurring monthly debts divided by your total monthly gross household income. Mortgage lenders look at your DTI when they consider you for a loan to make sure that you have enough money coming in to make your payments. You may have trouble finding a loan if your DTI is too high. Most lenders cater to applicants who have a DTI of 50% or lower.


    A deed is the physical document you receive that proves you own your home. You’ll receive your deed when you close on your loan.

    Discount Points

    Discount points are an optional closing cost you can pay to “buy” a lower interest rate. One discount point is equal to 1% of your loan amount. The more discount points you buy, the lower your interest rate will be. However, if you buy more points, you’ll need to cover them in cash at closing. You’re essentially paying more up front to enjoy more savings over the life of the loan.

    Down Payment

    Infographic for Down Payment definition.

    Your down payment is the first payment you make on your mortgage loan. You’ll usually see your down payment listed as a percentage of your loan value. For example, if you have a 20% down payment on a $100,000 loan, you’ll bring $20,000 to closing. Most loan types require some kind of down payment.

    Though many people believe that you need a 20% down payment to buy a home, this actually isn’t true. You can buy a home with as little as 3% down. Some types of government-backed loans may even allow you to buy a home with no down payment.

    Earnest Money Deposit

    An earnest money deposit is a check that you write to a seller when you make an offer on a home. Most earnest money deposits are equal to 1% – 3% of the home’s value. An earnest money deposit tells the seller that you’re serious about buying their home. If the seller accepts your offer, your earnest money deposit goes toward your down payment at closing.


    Most people who have a mortgage have an escrow account where their lender holds money for property taxes or homeowners insurance. This allows you to split taxes and insurance over 12 months instead of paying it all at once. Your lender may add escrow payments to your monthly mortgage dues along with principal and interest payments.

    Fixed-Rate Mortgage

    A fixed-rate mortgage has the same interest rate throughout the term of the loan. For example, if you buy a home at 4% on a 15-year fixed-rate loan, it means that you’ll pay 4% interest on your loan every month for your entire 15-year term. Homeowners who choose a fixed-rate term often believe that rates will rise over the course of their loan and want the stability and predictability this type of loan provides.

    Home Inspection

    A home inspection is different from a home appraisal. An appraisal gives you a rough estimate of how much a home is worth, but an inspection tells you about specific problems in the home. An inspector will walk around the home you want to buy and test things like the heating and cooling system, light switches and appliances. They will then give you a list of everything that needs to be repaired or replaced in the home.

    Most mortgage lenders don’t require an inspection as a condition of getting a loan, but it’s a good idea to get an inspection to make sure that your home doesn’t have any pressing issues before you buy it.

    Homeowners Insurance

    Homeowners insurance is a type of protection that compensates you if your home gets damaged during a covered incident. Common damages that are covered include fires, burglaries and windstorms. In exchange for coverage, you pay your insurance provider a monthly premium.

    You’re not legally required to get homeowners insurance to own a home. However, your mortgage lender may require you to maintain at least a certain level of coverage for the life of your loan.

    Mortgage Term

    Your mortgage term is the number of years you’ll pay on your loan before you fully own your home. For example, you may take out a mortgage loan with a 15-year term and that means that you’ll make monthly payments on your loan for 15 years before the loan matures. The most common mortgage terms are 15 years and 30 years, but some lenders offer terms as short as 8 years.


    Infographic for Preapproval definition.

    Get approved for a mortgage.

    Find out how much you can qualify for.

    A preapproval is a document that tells you how much you can afford to take out in a home loan. Many lenders consider the preapproval to be the first step in getting a mortgage. When you apply for a preapproval, your lender will ask you about your credit score, income, assets and other financial information. Your lender will then use these details to tell you how much you qualify for in a home. This can give you a rough budget to use when you compare properties.

    Keep in mind that a preapproval isn’t the same as prequalification. Prequalifications usually don’t involve asset and income verification, which means that they aren’t as reliable as preapprovals. Make sure you get a preapproval before you begin shopping for homes.


    Your principal balance is the amount that you take out in a loan. For example, if you buy a home with a $150,000 loan from your lender, your principal balance is $150,000. Your principal balance shrinks as you make payments on your loan over time.

    Private Mortgage Insurance (PMI)

    Private mortgage insurance (PMI) is a type of insurance that protects your lender in the event that you default on your loan. Your lender will usually require you to pay PMI if you have less than a 20% down payment. You have the option to remove PMI from your loan when you reach 20% equity in your property.

    Property Taxes

    You’ll be required to pay property taxes to your local government. The amount you pay in property taxes depends on your home’s value and where you live. Property taxes fund public needs such as police departments, roads, libraries and community development projects. Don’t forget to factor in property taxes when you shop for a home.

    Real Estate Agent

    A real estate agent is a local property professional who can help you shop for a home more effectively. As the first step in the home buying process, 17% of people looked for an agent to help guide them. Real estate agents can show you homes in your price range, draw up offer letters and work with sellers to get you a great deal on a home.

    There are two main types of real estate agents: seller’s agents and buyer's agents. Seller's agents help individuals sell their properties while buyer's agents work with those shopping for a home. In exchange for working with you, your real estate agent takes a commission from your home sale or purchase.


    Refinancing happens on an existing mortgage. Essentially, you trade the original debt obligation in for a new one. Refinancing is beneficial for borrowers to create a more convenient payment schedule, a lower interest rate or a different term. When considering refinancing on your mortgage, consider the closing costs associated with getting a new loan.

    Need extra cash for home improvement?

    Use your home equity for a cash-out refinance.

    Seller Concessions

    Seller concessions are clauses in your offer that ask the seller to pay certain closing costs. For example, you might ask the seller to cover elements like appraisal fees or your title search. The seller can reject your concessions or send you a counteroffer with concessions removed. Limitations on the percentage of your closing costs sellers can cover varies by property type.


    A title is proof that you own a home. Your title includes a physical description of your property, the names of anyone who owns the property and any liens on the home. When someone says that they’re “on the title” of a home, it means that they have some kind of legal ownership of the property. For example, if your parents helped you purchase a home, they’d likely be listed on the title.

    Title Insurance

    Title insurance is a common closing cost. You buy title insurance to protect yourself against outside claims to your property. Unlike other types of insurance, you don’t need to pay for title insurance every month. Instead, you make a single payment at closing that protects you for as long as you own the home.

    The Bottom Line

    Mortgages can be difficult to navigate and learning the common terminology is the first step to fully understanding your loan to complete the home buying process. When reading through hefty contracts, refer to our handy mortgage term glossary.

    Feel like you're now armed with the knowledge to get started? Start your initial mortgage approval online today.

    Take the first step toward buying a house.

    Get approved to see what you qualify for.


    This study was conducted for Rocket Mortgage® using Google Surveys. The sample consisted of no fewer than 2,000 completed responses per question. Post-stratification weighting has been applied to ensure an accurate and reliable representation of the total population. Responses were collected from January 7 – January 11, 2021.

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    Hanna Kielar

    Hanna Kielar is a Section Editor for Rocket Auto, RocketHQ, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.