Mortgage Glossary

Adjustable-Rate Mortgage (ARM)

A mortgage where the interest rate can change over time based on market conditions. Common ARM types include 5/1, 7/1, and 10/1, where the first number indicates how many years the rate stays fixed before adjusting annually. ARMs typically start with lower rates than fixed mortgages but carry more risk if rates increase. In Massachusetts, many credit unions offer competitive ARM products with rate caps to protect borrowers.

Amortization

The process of paying off your mortgage through regular monthly payments over the loan term. Each payment includes both principal and interest. Early in the loan, most of your payment goes toward interest, but as time goes on, more goes toward principal. A 30-year mortgage has 360 payments, while a 15-year has 180 payments.

Annual Percentage Rate (APR)

The true cost of borrowing, expressed as a yearly rate. APR includes not just the interest rate, but also fees like origination charges, points, and other costs. This makes it easier to compare loan offers from different lenders. For example, a loan with a 6.5% interest rate might have a 6.75% APR once fees are included. Massachusetts credit unions often have lower APRs than traditional banks because they charge fewer fees.

Appraisal

A professional evaluation of a property's market value, required by lenders before approving a mortgage. In Massachusetts, appraisals typically cost $400-$600 and are conducted by licensed appraisers who examine the home's condition, size, location, and compare it to recent sales of similar properties.

Closing Costs

Fees and expenses you pay when finalizing your mortgage, typically 2-5% of the purchase price. In Massachusetts, closing costs are higher than the national average due to required attorney fees ($1,000-$2,000), title insurance, recording fees, appraisal, inspection, and lender charges. On a $400,000 home, expect to pay $8,000-$20,000 in closing costs.

MA Specific: Massachusetts requires an attorney at closing, unlike many other states.

Conforming Loan

A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, including loan limits. For 2025, the conforming loan limit in most of Massachusetts is $766,550. Conforming loans typically offer better interest rates than non-conforming jumbo loans.

Conventional Loan

A mortgage not insured or guaranteed by the federal government (unlike FHA, VA, or USDA loans). Conventional loans typically require higher credit scores (usually 620+) and larger down payments (often 5-20%), but they offer more flexibility and can have lower costs if you have good credit.

Credit Score

A three-digit number (300-850) that represents your creditworthiness based on your credit history. In Massachusetts, you'll typically need a 620+ score for conventional loans, though some credit unions work with scores as low as 580. Higher scores (740+) get the best rates. Even a 20-point difference can affect your rate by 0.25-0.5%.

Credit Union

A member-owned financial cooperative that often offers better mortgage rates and lower fees than traditional banks. Massachusetts has over 170 credit unions serving different communities. Because they're not-for-profit, credit unions can pass savings to members through lower rates and fees. Check out our rate comparison to see current credit union mortgage rates.

Debt-to-Income Ratio (DTI)

The percentage of your gross monthly income that goes toward debt payments. Lenders calculate this by dividing your total monthly debts by your gross monthly income. Most lenders want to see a DTI below 43%, though some allow up to 50% with strong credit. Lower DTI means better loan terms.

Down Payment

The upfront cash you pay toward the home purchase. While 20% down is ideal (it avoids PMI), many loans allow less. FHA loans require just 3.5% down, conventional loans can go as low as 3%, and some credit union programs offer 0-5% down for first-time buyers. In Massachusetts, where median home prices are around $600,000, even a 5% down payment means $30,000 in cash.

Escrow

An account where your lender holds funds to pay property taxes and homeowners insurance on your behalf. Each month, a portion of your mortgage payment goes into escrow. In Massachusetts, where property taxes can be $6,000-$12,000+ annually, escrow helps you budget by spreading the cost over 12 months.

FHA Loan

A mortgage insured by the Federal Housing Administration, designed for borrowers with lower credit scores or smaller down payments. FHA loans require just 3.5% down and accept credit scores as low as 580. These loans are popular with first-time buyers in Massachusetts who don't have large savings.

Fixed-Rate Mortgage

A mortgage where the interest rate stays the same for the entire loan term. This means your principal and interest payment never changes, making budgeting easier. The most common terms are 30-year and 15-year fixed mortgages. Compare current fixed mortgage rates from Massachusetts credit unions.

Home Equity

The portion of your home that you actually own, calculated as the home's current value minus what you owe on the mortgage. You build equity by making mortgage payments and through home appreciation. In Massachusetts, where home values have historically increased, many homeowners build substantial equity over time.

Home Equity Line of Credit (HELOC)

A revolving line of credit secured by your home equity, similar to a credit card. You can borrow up to a certain limit, pay it back, and borrow again during the draw period (usually 10 years). Many Massachusetts homeowners use HELOCs for home improvements, debt consolidation, or emergency funds.

Homeowners Insurance

Insurance that protects your home and belongings from damage, theft, and liability. In Massachusetts, annual premiums average $1,500-$2,500 depending on location, home value, and coverage level. Your insurance is typically paid through your escrow account.

Interest Rate

The percentage charged by the lender for borrowing money, expressed as an annual rate. Your interest rate directly affects your monthly payment and the total interest you'll pay over the loan term. Even a 0.25% difference in rate can save or cost you thousands over 30 years. Check current Massachusetts credit union rates.

Jumbo Loan

A mortgage that exceeds the conforming loan limits. In Massachusetts, jumbo loans are for amounts over $766,550 in most counties. These loans typically require excellent credit (720+), larger down payments (10-20%), and have slightly higher interest rates. Given Massachusetts' high home prices, especially in Boston, jumbo loans are common.

Loan-to-Value Ratio (LTV)

The ratio of your loan amount to the property's value, expressed as a percentage. Lower LTV means less risk for the lender and often better rates for you. LTV above 80% typically requires PMI on conventional loans. When refinancing, you'll need at least 20% equity (80% LTV) to remove PMI.

MassHousing

Massachusetts' state housing finance agency that offers affordable mortgage programs for first-time buyers and low-to-moderate income borrowers. MassHousing loans feature competitive rates, down payment assistance, and flexible credit requirements. These programs are excellent for first-time buyers who need help with down payments or closing costs.

MA Specific: Unique to Massachusetts homebuyers

Origination Fee

A fee charged by the lender for processing your loan application, typically 0.5-1% of the loan amount. This fee covers the lender's administrative costs, credit checks, and underwriting. Credit unions often have lower origination fees than traditional banks.

Points (Discount Points)

Upfront fees you can pay to lower your interest rate, where one point equals 1% of the loan amount. Each point typically reduces your rate by about 0.25%. Whether points make sense depends on how long you plan to keep the loan.

Pre-Approval

A lender's written commitment to loan you a specific amount based on verification of your income, assets, and credit. Pre-approval shows sellers you're a serious buyer. In Massachusetts' competitive market, especially in Boston, pre-approval is often required to make an offer.

Principal

The amount of money you borrowed, not including interest. Each mortgage payment includes both principal and interest. Early in the loan, most of your payment goes to interest. Over time, more goes to principal.

Private Mortgage Insurance (PMI)

Insurance that protects the lender if you default on a conventional loan with less than 20% down. PMI typically costs 0.5-1% of the loan amount annually. You can request PMI removal once you reach 20% equity through payments or appreciation.

Refinancing

Replacing your existing mortgage with a new one, typically to get a lower interest rate, change the loan term, or access home equity. Refinancing makes sense when rates drop significantly or your credit improves. Consider closing costs when deciding if refinancing is worth it.

Title Insurance

Insurance that protects you and the lender against problems with the property's title, such as liens, ownership disputes, or errors in public records. In Massachusetts, title insurance is a one-time cost paid at closing, typically around 0.4% of the purchase price.

Underwriting

The process where the lender evaluates your financial information to determine if you qualify for the loan and at what terms. Underwriters review your credit, income, assets, debts, and the property appraisal. This typically takes 3-7 days but can be longer if additional documentation is needed.

USDA Loan

A zero-down-payment mortgage backed by the U.S. Department of Agriculture for rural and suburban homebuyers. In Massachusetts, many areas outside Boston qualify as "rural" under USDA guidelines. These loans have income limits and require the property to be in an eligible area.

VA Loan

A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses. VA loans offer zero down payment, no PMI, competitive rates, and limited closing costs. Massachusetts has a large veteran population, and many credit unions specialize in VA loans.