Plain-English guide
Understand the terms behind the numbers before comparing loans.
Amortization is the plan for paying your loan off in full by the end of its term. Each payment is the same size, but the split inside it changes. At the start most of it is interest, because you still owe a lot. As the balance drops the interest shrinks, and more of each payment goes to the loan itself.
The APR is the yearly cost of a loan with some of the lender fees folded in, not just the interest rate. Because it counts those fees, it is usually a little higher than the rate you are quoted. Two loans can share the same rate and still have different APRs. That makes the APR the better number when you compare offers.
Closing costs are the one-time fees you pay to set up the loan and finish the sale. They cover things like the appraisal, the title check and the paperwork. They are separate from your down payment, so you need cash for both on the day you buy. Expect roughly 2% to 5% of the price of the home.
Your DTI shows how much of your income is already promised to debts. Add up what you pay each month for car loans, credit cards and other loans. Then divide that by what you earn each month before tax. Lenders use it to judge whether you can take on a mortgage too, and a lower number gives you more room.
The down payment is the cash you put in yourself. The lender covers the rest, and that part is your loan. Paying more up front means you borrow less, so your monthly payment is smaller and you pay less interest in total. Reaching 20% also lets you skip mortgage insurance.
Equity is the share of the home that is really yours. Work it out by taking what the home is worth today and subtracting what you still owe. It grows in two ways: every payment cuts what you owe, and the home may rise in value. It falls if home prices drop.
An escrow account is a pot your lender holds for your property tax and home insurance. A slice of your monthly payment goes in, and the lender pays those bills for you when they fall due. That way one big tax bill does not land on you once a year. If the bills go up, the lender raises the monthly amount.
A fixed-rate mortgage keeps the same interest rate for the whole term. The part of your payment that covers the loan and its interest never changes, so you can plan around it. Tax and insurance can still move, so the full payment may shift a little. The other main type is an adjustable rate, which can go up or down.
Some neighborhoods and apartment buildings have a homeowners association, and living there means paying it a fee each month. The money covers shared things: the pool, the elevator, the roof, cutting the grass. It is not part of your loan, but lenders count it when they work out what you can afford. Many homes have no HOA at all.
This insurance pays to repair or rebuild your home if something like a fire, a storm or a break-in damages it. Lenders make you carry it, because the home is what backs the loan. The cost depends on the home, where it stands and how much cover you pick. It is often paid monthly through an escrow account.
Interest is what the lender charges you for the use of their money. It is worked out on what you still owe, so it is largest at the start and shrinks as the balance falls. Over 30 years it can add up to more than the price of the home. Paying extra toward the balance cuts the interest you pay in total.
The interest rate is the percent a lender charges each year for the loan. It is the single biggest thing driving your monthly payment. Even half a percent makes a real difference across 30 years. Your rate depends on the market, your credit, your down payment and the loan you pick.
A Loan Estimate is a three-page form every lender must send you within three days of your application. It lays out the rate, the monthly payment, the closing costs and any penalties, always in the same order. Because the layout is fixed, you can put two lenders side by side and compare them line for line. Ask more than one lender for one.
LTV compares the size of your loan with what the home is worth, as a percent. Borrow $180,000 against a $200,000 home and your LTV is 90%. Lenders watch it because a lower LTV means less risk for them. It falls as you pay the loan down, and it sets the point where mortgage insurance can come off.
Mortgage insurance protects the lender if you stop paying. It does not protect you, even though you are the one paying for it. You usually need it when your down payment is under 20%. On a normal loan it comes off once you have paid enough of the balance down.
Points are an optional fee you pay at the start to get a lower interest rate. One point costs 1% of the loan and takes a small amount off the rate. It only pays off if you stay in the home long enough for the smaller payments to cover what you paid. Ask the lender how many years that takes.
The principal is what you still owe, without the interest. You start with the amount you borrowed, and it drops with every payment. Early on only a small slice of each payment goes to it. Any extra money you send goes straight to the principal, which is why it cuts your total interest so much.
PMI is the mortgage insurance you pay on a normal loan when your down payment is under 20%. It protects the lender, not you. Once the balance you are due to owe reaches 80% of what the home was worth when you bought it, you can ask for it to stop. At 78% the lender has to end it, as long as you are up to date on payments.
Property tax is what you pay your city or county for owning the home. It is based on what the home is valued at, so it rises as values rise. It is usually split into monthly amounts and collected with your mortgage payment. Rates vary a lot from place to place, so check the real figure for the address.
To refinance is to swap your loan for a new one. People do it to get a lower rate, to change how many years they have left, or to take cash out of their equity. It is a new loan, so you pay closing costs again. It is worth doing only if the savings beat those costs before you move or pay it off.
The term is how long you have to pay the loan back, most often 15 or 30 years. A shorter term means bigger monthly payments but far less interest in total. A longer term does the opposite: easier each month, more costly overall. Picking a term is really a trade between the two.