The loan and its price
Principal: the loan balance you repay, separate from interest.
Interest rate: the rate used to calculate interest on the outstanding balance.
APR: a yearly borrowing-cost measure that includes the rate and certain loan charges. It is not your monthly payment rate.
Loan term: the time allowed to repay the loan, such as 15 or 30 years.
Fixed-rate mortgage: a loan whose interest rate stays unchanged for its term.
Adjustable-rate mortgage (ARM): a loan whose rate can reset under the contract’s rules.
Amortization: paying a balance down through scheduled payments over time.
Points: upfront charges expressed as a percentage of the loan. Discount points can buy a lower quoted rate.
Cash, equity, and qualifying
Down payment: the part of the purchase price you pay without the primary mortgage.
Closing costs: charges and other costs for completing the transaction, separate from the down payment.
Cash to close: the amount still needed at settlement after relevant deposits, credits, and adjustments.
Earnest money: a purchase deposit held under your contract’s terms; whether it is refundable depends on those terms.
Equity: estimated property value minus debt secured by the home.
Loan-to-value (LTV): the loan balance divided by the property value used for the calculation.
Debt-to-income (DTI): qualifying monthly debt payments divided by gross monthly income.
Reserves: funds remaining after closing that a lender may require you to document.
People, protection, and paperwork
Preapproval: a lender’s conditional assessment of borrowing eligibility; ask what information was verified.
Underwriting: the lender’s review of the borrower, property, and loan requirements.
Appraisal: an assessment of property value. It does not replace a home inspection.
Escrow account: an account a servicer may use to collect and pay property taxes and insurance.
PMI: private mortgage insurance, which protects the lender and may apply to a conventional loan.
Loan Estimate: a standardized disclosure of proposed loan terms, projected payments, and closing costs for covered mortgages.
Closing Disclosure: the final loan disclosure to review against the terms and costs you expected.
Servicer: the company that handles payments and day-to-day administration of your mortgage.
Use the definitions to ask better questions
Keep this page beside you when comparing quotes. Ask the lender to point to the number being discussed and explain what it includes. ‘Payment’ might mean principal and interest alone or a larger amount including escrow and mortgage insurance. Knowing which one you are looking at makes a comparison much more useful.
Put the numbers in perspective.
Try your own assumptions in the mortgage payment calculator. Change one input at a time to understand what matters most to your plan.
Sources & further reading
CFPB: Mortgage key terms
Fannie Mae: Glossary of key terms