The mortgage terms that actually change your decision

Interest rate, APR and points

The interest rate helps determine the interest charged on the loan and the principal and interest payment. APR is a broader annualized measure that includes the rate and certain finance charges. It can help compare offers with different fees, but it is not the monthly payment.

Discount points are upfront interest paid to reduce the rate. One point equals one percent of the loan amount. The useful question is not whether points create a lower rate. It is whether the upfront cost makes sense for the time you expect to keep the loan.

Compare rate, APR, points and lender credits on the same page.

Principal, amortization and loan term

Principal is the amount borrowed. Amortization is the schedule that pays the loan down through regular payments. Early in a long fixed term, more of the payment generally goes to interest. Over time, more goes to principal.

A shorter term can increase the monthly payment while reducing total interest. A longer term can lower the required payment while increasing the time interest accrues. The right term must fit both the monthly plan and the expected time in the home.

Loan to value and mortgage insurance

Loan to value compares the loan amount with the property value used for the transaction. A $400,000 loan against a $500,000 value has an 80% loan-to-value ratio.

Loan to value can affect pricing, mortgage insurance, and eligibility. Conventional private mortgage insurance may apply when the loan exceeds 80% loan to value. Government-backed programs use different insurance or guarantee-fee structures.

• Down payment changes the starting loan to value.
• Appraised value can change the final calculation.
• Mortgage insurance is not homeowners insurance.
• Cancellation rules depend on the loan and applicable requirements.

Closing costs, prepaids and cash to close

Closing costs include lender, title, settlement, recording and other transaction charges. Prepaid items can include homeowners insurance, property taxes and daily interest. The down payment is separate from both.

Cash to close brings those pieces together, then accounts for deposits, credits and other adjustments. This is why a low down payment does not automatically mean a low cash requirement.

Loan Estimate and Closing Disclosure

The Loan Estimate gives a standardized view of the proposed loan terms, projected payment and closing costs. It is designed for comparison. Use the same loan amount, term and lock assumptions when placing two offers side by side.

The Closing Disclosure presents the final terms and costs before closing. Review changes instead of assuming the final document matches the first estimate line for line.