Amortization
The repayment of a loan through scheduled payments over time. In a typical fully amortizing mortgage, each principal-and-interest payment reduces the balance while also paying interest.
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A plain-language starting point for the words you will hear along the way.
Annual percentage rate (APR)
A yearly cost measure that reflects the interest rate and certain loan charges. Use it alongside cash to close, monthly payment and how long you expect to keep the loan.
Cash to close
The estimated amount needed to complete the transaction, reflecting the down payment, closing costs, credits, deposits and other adjustments.
Closing costs
Charges associated with completing a mortgage and property transaction. They are separate from the down payment.
Debt-to-income ratio (DTI)
A comparison of qualifying monthly debt obligations to qualifying monthly income under the lender’s rules. Program and lender requirements vary.
Discount points
An upfront charge generally paid in exchange for a lower interest rate. Compare the upfront cost with the expected benefit over time.
Down payment
The portion of a purchase price paid from eligible funds rather than financed through the mortgage.
Equity
The difference between a property’s value and the debt secured by it. Available borrowing against equity depends on loan requirements and costs.
Escrow account
An account a lender or servicer may use to collect and pay property taxes, insurance and certain other property expenses.
Fixed-rate mortgage
A mortgage with an interest rate that remains fixed under the loan’s terms. Taxes, insurance and other housing costs can still change.
Loan Estimate
A standardized three-page disclosure describing important estimated terms and costs of a proposed covered mortgage.
Loan-to-value ratio (LTV)
The loan amount compared with the property value used by the lender. Program calculations and combined-lien rules can vary.
Mortgage insurance
Insurance that protects the lender or program against certain losses. Requirements, costs and cancellation rules depend on the loan type.
Preapproval
A lender’s conditional assessment of a potential mortgage. The review behind the term varies and it is not final loan approval.
Principal
The amount of mortgage debt outstanding, excluding interest and other charges.
Rate lock
An agreement that holds a rate for a specified period under stated conditions. Ask about expiration, changes and extension costs.
Refinance
A new mortgage that replaces an existing one. Compare costs, balance, term, payment and total interest.
Underwriting
The lender’s evaluation of the borrower, property and loan against applicable requirements.