Mortgage glossary | Crunch My Mortgage

The definitions below are the meanings used on this site. Where a statute or an agency defines the term, that source is named. A definition here is not a loan approval and not a rate.

Amortization

Amortization is the schedule that pays a loan down to zero. Each payment covers that month’s interest, and the rest reduces principal. Early payments are mostly interest because the balance is large. Later payments are mostly principal. The mortgage payment calculator prints the schedule. On a $300,000 loan at 6% for 30 years, the principal-and-interest payment is $1,798.65 a month. That anchor is the one the site’s tests check.

Principal and interest

Principal is the amount you still owe. Interest is the cost of borrowing it for the month. The note rate is the interest rate in the promissory note. The payment formula uses that rate, not the annual percentage rate. The APR folds certain upfront fees into a single yearly figure so two offers can be compared. The Consumer Financial Protection Bureau explains the difference. Use the note rate in the payment calculator. Use both numbers when you read a Loan Estimate.

PITI and escrow

PITI is principal, interest, taxes, and insurance. Lenders often collect the tax and insurance portion into an escrow account and pay the bills when they come due. The escrow deposit at closing is a few months of those bills, set aside in advance. It is part of cash to close, and it is not a fee the lender keeps. The cash to close calculator separates it from origination charges.

Discount points and lender credits

A discount point is a charge at closing, usually one percent of the loan amount, paid in exchange for a lower note rate. A lender credit is the opposite trade: a higher rate, and money from the lender toward closing costs. Points can be deductible in the way IRS Publication 936 describes. Whether they are worth paying is a time question. The points calculator divides the cost by the monthly saving.

APR

The annual percentage rate is a way to express the cost of the loan, including certain fees, as a yearly rate. It is not the rate your monthly payment is multiplied from. Two loans with the same note rate and different points will show different APRs. The Loan Estimate prints both.

Loan-to-value ratio

The loan-to-value ratio is the loan divided by the value. At closing, value is generally the lower of the price and the appraisal. A $240,000 loan on a $300,000 value is 80 percent. Conventional private mortgage insurance is usually required above 80 percent. The ratio that later ends that insurance uses the original value, not a new sale price. See when PMI comes off.

Debt-to-income ratio

The front-end ratio is the housing payment divided by gross monthly income. The back-end ratio adds the other monthly debts. Program cutoffs differ. Fannie Mae publishes 36 percent for manual underwriting, up to 45 percent with the credit and reserve rules in its matrix, and 50 percent for Desktop Underwriter. FHA and VA use their own tests. The numbers are in debt-to-income limits by loan type. The calculator only divides.

PMI, MIP, and the funding fee

Private mortgage insurance is the conventional premium the Homeowners Protection Act can cancel. MIP is FHA’s mortgage insurance premium, upfront and annual, from HUD’s table, and it does not use the 78 percent rule. The VA funding fee is a one-time percentage of a VA loan, and some borrowers are exempt. Three names, three programs. The calculators are the PMI removal calculator, the FHA MIP calculator, and the VA funding fee calculator.

Conforming loan limit

The conforming loan limit is the maximum original balance on a loan Fannie Mae and Freddie Mac may buy. FHFA sets it each year. For 2026 the baseline one-unit limit in most of the country is $832,750. FHA builds its own floor and ceiling from that baseline. Those FHA figures are in FHA loan limits in 2026. A loan above the conforming limit is a jumbo loan and is outside the standard conforming guides.

Loan Estimate and Closing Disclosure

The Loan Estimate is the three-page form a lender provides after you apply. The Closing Disclosure is the later form with the figures you will sign. Cash to close and closing costs are both on the estimate, and they are not the same number. Closing costs are the charges. Cash to close is what you bring after the down payment, credits, and deposits already paid.

Recast

A recast, in Fannie Mae’s servicing guide, is a re-amortization after a large principal payment. The rate and the remaining term stay. The payment is recalculated on the new, lower balance. Paying the same extra money and keeping the old payment pays the loan off sooner instead. The recast calculator shows both. A servicer does not have to offer a recast, and many charge a fee.

Temporary buydown

A temporary buydown lowers the payment for the first year or two. A 2-1 buydown charges a rate two points below the note in year one and one point below in year two, then the note rate. The note itself does not change. Someone deposits the subsidy at closing. Fannie Mae’s Selling Guide section B2-1.4-04 describes the feature. The buydown calculator adds up the subsidy. It is not the same product as discount points, which change the note rate for the whole term.

Adjustable-rate mortgage

An adjustable-rate mortgage uses a fixed rate for an initial period, then a rate that moves with an index plus a margin. Caps limit how far it can move at the first change, at later changes, and over the life of the loan. The CFPB’s CHARM booklet is the official consumer explanation. The ARM calculator applies the caps you type. It does not predict the index.

Basis point

A basis point is one one-hundredth of a percentage point. Fifty basis points is 0.50 percent. Rate sheets use the term so that “a quarter point” and “25 basis points” are the same change. The calculators on this site ask you to type percents, such as 6.5, not basis points.

Prepayment

A prepayment is principal paid before it is due. On a loan without a prepayment penalty, extra principal shortens the schedule and cuts interest. The extra payment calculator and the biweekly calculator measure that. A biweekly plan pays half a month’s payment every two weeks, which is 13 monthly payments a year. Some products only debit your bank on that schedule and still credit the loan monthly. The CFPB’s definition flags the difference, and the fee a third party may charge for arranging it.

Cash to close

Cash to close is the amount due to complete the purchase or the refinance, after credits. It includes the down payment when there is one. It is the bottom line of the Loan Estimate’s closing box, not the sum of origination charges alone. In the payment example above, a $300,000 loan at 6% for 30 years costs $1,798.65 a month before taxes and insurance. That monthly figure is not cash to close. Cash to close is paid once, at the table.