LEARN · Reference
Mortgage terms, in plain English.
Every term a borrower actually runs into on a refinance — defined the way a loan officer would say it out loud, not the way an underwriting manual puts it. Hover any across the site to pop a quick reference without leaving the page.
Rates & Pricing
APR
rates
The Annual Percentage Rate is the yearly cost of the loan including interest plus most lender fees, expressed as a percentage. It lets you compare loans apples-to-apples — a 6.0% rate with $4,000 in fees is not the same deal as a 6.0% rate with $0 in fees.
interest rate
rates
The percentage the lender charges on your outstanding balance each year. Your monthly principal-and-interest payment is derived from this rate, the balance, and the term. The rate alone doesn't tell you the full cost of the loan — that's what APR is for.
Costs & Fees
buydown
costs
A temporary reduction in your rate for the first 1-3 years of the loan, funded at closing (often by a seller or builder). A 2-1 buydown means the rate is 2% lower in year 1 and 1% lower in year 2, then settles to the note rate in year 3 onward.
closing costs
costs
The fees you pay to finalize a mortgage: lender origination, title insurance, appraisal (if required), recording fees, and prepaid items like the first year of homeowners insurance. Typical range is 2-5% of the loan amount. On a VA IRRRL, many of these are waived or rolled into the loan balance.
discount points
costs
Prepaid interest you can pay upfront at closing to reduce your rate. One point typically costs 1% of the loan amount and buys down the rate by roughly 0.25%. Whether points are worth it depends on how long you'll hold the loan — the break-even math is a matter of months-until-recoup.
escrow
costs
A separate account attached to your mortgage that the lender uses to pay your property taxes and homeowners insurance on your behalf. You pay into it monthly (bundled into your mortgage payment), and the lender disburses when taxes and insurance come due — so you don't have to save for a lump-sum bill once or twice a year.
PITI
costs
Principal, Interest, Taxes, and Insurance — the four components of a typical monthly mortgage payment. When someone says "your payment is $2,400," they almost always mean PITI, not just the principal-and-interest portion.
PMI
costs
Private Mortgage Insurance — a monthly premium you pay on conventional loans with less than 20% down (or above 80% LTV). It protects the lender if you default. PMI automatically drops off when your balance reaches 78% LTV; you can usually request removal at 80%. VA loans have no PMI.
VA funding fee
costs
A one-time fee the VA charges on most VA loans to keep the program self-sustaining. It's typically 0.5% on an IRRRL and 2.15-3.3% on a purchase or cash-out, and it's almost always rolled into the loan (not paid out of pocket). Veterans with 10%+ service-connected disability are exempt.
Qualification
DTI
qualification
Debt-to-Income ratio: your monthly debt payments divided by your gross monthly income. Most conventional loans cap DTI around 45-50%; VA loans can stretch higher with strong residual income. Lower is better — it tells the lender you can absorb the new payment.
loan-to-value
qualification
Your loan balance divided by the home's value, expressed as a percentage. An $320,000 loan on a $400,000 home is an 80% LTV. Lenders price risk partly off LTV — below 80% usually unlocks better rates, and above 80% on conventional loans typically triggers mortgage insurance.
residual income
qualification
The dollars left over each month after taxes, debts, and a modeled cost-of-living allowance. The VA uses residual-income tables (by region and family size) as a floor: if you clear the table for your situation, the VA considers you able to cover daily expenses even with a high DTI.
Loan Programs
VA IRRRL
programs
The VA's Interest Rate Reduction Refinance Loan — a streamlined refinance for veterans who already have a VA loan. No appraisal required in most cases, no income documentation, and typically closes in 2-3 weeks. The catch: you can only use it to lower your rate or move from an ARM to a fixed rate, not to take cash out.
Process & Timing
amortization
process
The schedule by which each monthly payment splits between interest and principal. Early in the loan, most of the payment goes to interest; by the end, most goes to principal. This is why refinancing late in a loan can save less total interest than it looks — you've already paid most of the interest upfront.
appraisal
process
A licensed appraiser's estimate of the home's market value, ordered by the lender. It sets the value used to compute LTV. On a VA IRRRL and most streamlined refinances, the appraisal is waived.
break-even
process
The month at which your cumulative refinance savings equal the cost of the refinance. If you're saving $200/month and the refi cost $4,000, you break even at month 20. Refinancing makes sense only if you'll keep the loan well past the break-even point.
rate lock
process
A commitment from the lender to honor a specific interest rate for a specific number of days (typically 30, 45, or 60). If rates rise during your lock, you're protected; if they fall, you generally can't renegotiate. Some lenders offer a one-time "float-down" — ask before you lock.
Test what you just learned
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