Mortgage & Loan Calculator Glossary

The process of paying off a loan through scheduled payments split between interest and principal. Early payments are mostly interest; later ones are mostly principal, which is why the same monthly payment pays down the balance faster over time.

A lender-ordered professional estimate of a home's market value. For PMI cancellation, a fresh appraisal can sometimes prove your equity has grown through appreciation, though the automatic termination date is still tied to the home's original value, not a new appraisal.

A mortgage whose interest rate is fixed for an initial period and then adjusts periodically based on a market index. Refinancing out of an ARM into a fixed conventional loan is one common reason to run a break-even comparison.

A debt-to-income calculation that includes your total housing payment plus every other monthly debt — car loans, student loans, credit cards. Most lenders underwrite to this ratio rather than the narrower front-end ratio.

The month at which cumulative savings from a financial decision — paying points, refinancing — finally equal the upfront cost of making that decision. Before this point you're behind; after it, you're ahead.

Liquid savings a borrower has left after closing, measured in months of mortgage payments. Lenders treat strong reserves as a compensating factor that can offset a higher DTI or a lower DSCR.

Replacing your entire existing mortgage with a new, larger loan and taking the difference in cash. Because it re-prices your whole balance at the new rate, it can cost more than the closing-cost figure alone suggests if you already have a low rate.

The fees charged to originate a loan — lender fees, title insurance, appraisal, escrow, and recording charges, among others. On a refinance, these costs have to be recovered through monthly savings before the refinance is actually a win.

Strengths in a loan application — a high credit score, large cash reserves, a low loan-to-value ratio — that can convince a lender to approve a higher debt-to-income ratio than their standard cap.

A mortgage not insured or guaranteed by a government agency, unlike FHA or VA loans. Conventional loans are the ones subject to the Homeowners Protection Act's PMI cancellation rules.

Prepaid interest: a lump sum paid at closing, usually 1% of the loan amount per point, in exchange for a permanently lower interest rate. Points only pay off if you keep the loan past the break-even month.

The ratio lenders use to qualify rental-property loans based on the property's income rather than the borrower's personal income: gross monthly rent divided by the property's full monthly housing payment (PITIA). A DSCR of 1.00 means the rent exactly covers the payment.

The share of your gross monthly income that goes toward debt payments. Lenders cap this ratio — commonly 43%–50% — to decide the maximum mortgage payment, and therefore home price, you qualify for.

An account, typically managed by your servicer, that collects a portion of your payment each month to pay property taxes and homeowners insurance when they come due. Extra principal payments are separate from escrow and don't change it.

Any amount paid toward a mortgage above the required monthly payment, applied directly to the loan balance. Because it skips interest entirely, it reduces the balance — and all future interest on that amount — immediately.

A mortgage insured by the Federal Housing Administration, aimed at borrowers who might not qualify for conventional financing. FHA loans carry their own mortgage insurance premium (MIP) rules instead of conventional PMI, and generally can't be recast.

A debt-to-income calculation that looks only at the proposed housing payment relative to gross income, ignoring other debts. Less commonly the binding constraint than the back-end ratio.

The full contracted or market rent for a property before subtracting operating expenses like vacancy, management, or maintenance. Many DSCR loan programs qualify borrowers using gross rent rather than net operating income.

A revolving line of credit secured by your home's equity, held as a second lien behind your existing mortgage. Unlike a cash-out refinance, a HELOC leaves your original mortgage completely untouched.

Recurring fees paid to a homeowners or condo association for shared maintenance and amenities. They count as part of your full housing payment (PITIA) for DSCR and affordability calculations, even though they're not part of principal and interest.

The federal law that sets the rules for cancelling PMI on conventional loans: the right to request cancellation at 80% loan-to-value, and automatic termination at 78%, both measured against the home's original value.

A standardized disclosure lenders must provide shortly after a mortgage application, showing the quoted rate, estimated closing costs, and other loan terms. Always compare the actual Loan Estimate rather than a rule-of-thumb rate.

Your loan balance divided by the home's value, expressed as a percentage. LTV is the trigger for PMI cancellation — 80% and 78% of original value — and a key factor in HELOC and cash-out refinance eligibility.

A single, one-time payment made toward a loan's principal, larger than a normal monthly payment. A lump sum is what triggers a mortgage recast, and is also the cash side of a HELOC-versus-cash-out-refinance decision.

The mortgage insurance charged on FHA loans, which — unlike conventional PMI — often lasts for the life of the loan and typically requires a refinance into a conventional loan to remove.

A refinance where the lender covers the closing costs in exchange for a higher interest rate or a larger loan balance — the costs aren't eliminated, just moved. It can still make sense if you won't keep the loan long enough for a points-based refinance to break even.

A property's rental income minus operating expenses like vacancy, management, and maintenance. Some DSCR lenders qualify loans using NOI instead of gross rent, which produces a lower, more conservative ratio.

A mortgage that doesn't meet federal “Qualified Mortgage” standards — often used for self-employed borrowers or investment properties. These loans are more likely to carry a prepayment penalty than standard conventional loans.

The lower of a home's purchase price or its appraised value at closing. Automatic PMI termination is legally tied to this fixed figure, not to today's market value, even if your home has appreciated since.

The portion of a mortgage payment that covers the loan itself, as opposed to taxes, insurance, and HOA dues (together, PITIA). P&I is what changes when you refinance, recast, or buy down your rate with points.

The full monthly cost of owning a financed home: Principal, Interest, Taxes, Insurance, and Association dues. Lenders use PITIA, not just principal and interest, to calculate DSCR and affordability.

Insurance required on most conventional loans with a down payment under 20%, protecting the lender — not the borrower — if the loan defaults. Federal law sets fixed loan-to-value thresholds for when it can and must be removed.

A fee some loans charge if you pay off or pay down the balance faster than scheduled. Rare on standard conventional mortgages today, but worth checking on non-QM or investment-property loans before making large extra payments.

The amount of money actually borrowed, or still owed, separate from interest. Every mortgage payment splits between the two; extra payments and lump sums go entirely toward principal.

Making a lump-sum payment toward your principal and having your lender recalculate — “re-amortize” — your monthly payment over the same remaining term and rate. Unlike paying extra each month, a recast lowers your required payment immediately rather than shortening the loan.

A loan secured by a property that already has a primary mortgage — the first lien — on it. A HELOC is typically a second lien, subordinate to your existing mortgage, which is why it doesn't require refinancing your original loan.

A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible service members and veterans, usually requiring no down payment or PMI. Like FHA loans, VA loans generally can't be recast.