Mortgage terms matter
when they change payment, cash or approval.

Interest rate, APR, and points

Interest rate: the percentage used to calculate interest on the loan balance. It is not the complete cost of the loan.

Annual percentage rate (APR): an annualized cost measure that combines the interest rate with certain finance charges. Compare APR only when loan type, amount, term, and timing are consistent.

Discount points: upfront charges paid for a particular rate. One point equals one percent of the loan amount. Test the cost against expected monthly savings and holding period.

Lender credit: money the lender applies toward eligible closing costs, generally in exchange for a different rate or pricing structure.

Principal, interest, and amortization

Principal: the amount borrowed or the remaining loan balance.

Interest: the cost charged for borrowing the principal.

Amortization: the scheduled repayment of principal and interest over time.

Loan term: the period used to repay the loan, such as 15 or 30 years. A longer term can reduce the payment while extending interest costs.

Payment terms

Principal and interest: the loan portion of the monthly payment.

Complete monthly housing payment: principal, interest, property taxes, homeowners insurance, mortgage insurance, association dues, and other recurring property costs when applicable.

Escrow account: an account used to collect and pay items such as property taxes and homeowners insurance.

Mortgage insurance: coverage that protects the lender or program when required; it is not homeowners insurance.

Cash to close

Down payment: the portion of the purchase price paid rather than financed.

Closing costs: lender, title, settlement, recording, appraisal, and other transaction charges.

Prepaids: amounts collected for timing-related items such as daily interest, taxes, and insurance.

Cash to close: the final amount due after the down payment, closing costs, prepaids, deposits, credits, and adjustments are combined.

Reserves: verified funds remaining after closing that may be required or kept as a household cushion.

Property value and equity

Appraisal: an independent valuation used in the lending decision. It is not a home inspection.

Loan-to-value (LTV): the loan amount divided by the property value used by the lender.

Combined loan-to-value (CLTV): total mortgage debt secured by the property divided by the value used by the lender.

Equity: the difference between property value and debt secured by the property; it can change as value and loan balances change.

Credit and debt review

Credit score: one input used in evaluating credit risk; the complete credit history still matters.

Debt-to-income ratio (DTI): monthly debt obligations divided by qualifying monthly income under the lender's rules.

Credit inquiry: a request to access credit information. A soft inquiry and hard inquiry can serve different purposes and affect credit differently.

Compensating factor: a strength such as reserves or stable income that may support a file when program rules permit.

Prequalification, approval, and underwriting

Prequalification: an early review based on available information. It is not final approval or a commitment to lend.

Preapproval: a lender-specific preliminary decision that remains subject to conditions, property review, and final underwriting.

Underwriting: evaluation of the borrower, property, documentation, and complete transaction under applicable requirements.

Conditional approval: an underwriting decision that lists items that must be satisfied before final approval or closing.

Commitment to lend: a lender's written commitment subject to its stated terms and conditions—not a website estimate or calculator result.

Documents and timing

Loan Estimate: a standardized disclosure of proposed loan terms, projected payment, and closing costs.

Closing Disclosure: the final disclosure of loan terms and closing costs provided before consummation under applicable timing rules.

Rate lock: an agreement to hold specified pricing for a defined period, subject to its conditions.

Closing or consummation: the point when the borrower becomes contractually obligated on the loan; local transaction steps can vary.

Loan programs

Conforming loan: a mortgage within applicable loan limits and aligned with eligible conventional frameworks.

Jumbo loan: a nonconforming mortgage above the applicable conforming limit.

FHA loan: a mortgage made by an approved private lender and insured by the Federal Housing Administration.

VA loan: a mortgage made by a private lender and partially guaranteed by the U.S. Department of Veterans Affairs for eligible borrowers.

USDA guaranteed loan: a mortgage made by an approved lender for eligible households and properties under the applicable rural housing program.

Refinance and home equity

Rate-and-term refinance: replacement of the current mortgage primarily to change rate, term, payment, or structure without a substantial cash-out purpose.

Cash-out refinance: replacement of the current mortgage with a larger loan that provides eligible cash proceeds.

Home-equity loan: a separate installment loan secured by home equity, often with a fixed payment structure.

HELOC: a revolving home-equity line of credit whose rate and payment may change.

Recovery period: the time estimated savings may take to recover eligible upfront refinance costs.