A mortgage whose rate is fixed for an initial period (such as 5 or 7 years) and then adjusts periodically based on a market index, within limits set by rate caps. ARM vs. fixed-rate →
Amortization
Paying off a loan with equal monthly payments over a set term. Early payments are mostly interest; later payments are mostly principal. How amortization works →
Annual percentage rate (APR)
The yearly cost of a loan including the interest rate and most lender fees, so it is usually higher than the rate. Use it to compare offers with the same term. APR vs. interest rate →
B
Break-even point
For a refinance, the number of months it takes for monthly savings to repay the closing costs: closing costs ÷ monthly savings. Should I refinance? →
C
Cap rate
A rental property's yearly net operating income divided by its price. It measures the return before financing. Cap rate vs. cash-on-cash →
Cash-on-cash return
A rental's yearly cash flow after the mortgage divided by the cash you invested (down payment and costs). Cap rate vs. cash-on-cash →
Cash-out refinance
Replacing your mortgage with a larger one and taking the difference in cash. It resets your rate and term on the whole balance. Cash-out refinance →
Closing costs
Fees and prepaid items due when a mortgage closes, such as lender fees, title insurance, appraisal and recording fees. They often run about 2% to 6% of the loan. Mortgage closing costs →
Closing Disclosure
The final five-page form showing your loan terms and costs. Lenders must provide it at least three business days before closing. Mortgage closing costs →
Compound interest
Interest earned on both your deposits and on interest already earned, which makes growth speed up over time. Compound interest calculator →
Conventional loan
A mortgage not insured or guaranteed by a government agency. With less than 20% down it usually requires private mortgage insurance. FHA vs. conventional →
Credit score
A number that summarizes your credit history. Higher scores usually qualify for lower interest rates and lower mortgage insurance costs. Credit score and mortgage rates →
D
Debt avalanche
Paying off debts by putting extra money toward the highest interest rate first. It costs the least interest. Avalanche vs. snowball →
Debt snowball
Paying off debts by putting extra money toward the smallest balance first, for faster early wins. Avalanche vs. snowball →
Debt-to-income ratio (DTI)
Your monthly debt payments divided by your gross monthly income. Lenders use it to decide how much you can borrow. How much house can I afford? →
Discount points
Optional fees paid at closing to lower your interest rate. One point equals 1% of the loan amount. Mortgage closing costs →
Down payment
The part of the purchase price you pay upfront in cash. The rest is financed with the mortgage. Home affordability calculator →
E
Escrow
An account your mortgage servicer uses to collect part of your monthly payment and pay property taxes and homeowners insurance for you. Mortgage calculator →
F
FHA loan
A mortgage insured by the Federal Housing Administration. It allows a smaller down payment and more flexible credit, with its own mortgage insurance premiums. FHA vs. conventional →
Fixed-rate mortgage
A mortgage whose interest rate and principal-and-interest payment stay the same for the whole term. 15- vs. 30-year mortgage →
H
HELOC
A home equity line of credit: a revolving line secured by your home, usually with a variable rate, an interest-only draw period and a later repayment period. HELOC vs. home equity loan →
A lump-sum second mortgage with a fixed rate and fixed payments, secured by your home equity. HELOC vs. home equity loan →
L
Loan Estimate
A standard three-page form a lender must give you within three business days of a mortgage application, making it easy to compare offers. Mortgage closing costs →
Loan-to-value ratio (LTV)
Your loan balance divided by the home's value. Lower LTV means more equity and usually better terms. What is PMI? →
O
Origination fee
A lender's charge for processing a loan, often a percentage of the amount borrowed. On personal loans it is often deducted from the money you receive. $25,000 loan payment →
P
PITI
Principal, interest, taxes and insurance: the four parts of a typical monthly mortgage payment. Mortgage calculator →
Prepayment penalty
A fee some loans charge if you pay them off early. Check the loan agreement before signing. Loan calculator →
Principal
The amount you borrowed, or the part of your balance still owed, not counting interest. How amortization works →
Private mortgage insurance (PMI)
Insurance that protects the lender on a conventional loan with less than 20% down. It can be removed once you reach enough equity. What is PMI? →
R
Rate lock
A lender's promise to hold a specific interest rate for a set period while your loan is processed. Credit score and mortgage rates →
Refinance
Replacing your current loan with a new one, usually to get a lower rate, change the term or take cash out. Refinance calculator →
V
VA loan
A mortgage guaranteed by the Department of Veterans Affairs for eligible service members, veterans and some surviving spouses, usually with no down payment and no monthly mortgage insurance. VA loan basics →