Plain-language definitions for statutory banking acronyms, interest compounding rules, and underwriting formulas.
The yearly cost of credit including interest and most fees, expressed as a percentage. APR is higher than the note rate when you pay origination fees or points. It lets you compare offers with different fee structures.
The contractual rate used to compute each month's interest. Unlike APR, it excludes fees. A lower note rate with high fees can be more expensive than a slightly higher rate with no fees.
Loan amount divided by property value. An LTV above 80% often triggers mortgage insurance (PMI, LMI, or equivalent) and may mean a higher rate.
Monthly debt payments divided by gross monthly income. US underwriting commonly uses a 28% front-end (housing) and 36% back-end (all debts) guideline; other countries use different caps or income multiples.
With a fully amortizing loan, each payment covers that month's interest and a growing slice of principal. Early payments are interest-heavy; later payments are principal-heavy. An amortization schedule shows the split every month.
The loan balance, not including interest. Extra payments applied to principal shorten the term and cut total interest because future interest is charged on a smaller balance.
In some markets the lender collects property tax and home insurance monthly and pays the bills when due. That is why a 'monthly payment' is often PITI, not just principal and interest.
The full housing payment used in affordability tests. HOA dues and mortgage insurance are usually added on top.
Insurance that protects the lender, not you, when LTV is high. In the US, PMI on a conventional loan typically drops at 80% LTV (78% automatically). Australia's LMI is usually a one-time premium.
One point costs 1% of the loan amount. Whether points are worth it depends on how long you keep the loan — the break-even is cost divided by monthly savings.
A fixed rate stays the same for a set period (or the whole term). A variable / tracker / ARM rate can move with a benchmark. Compare the initial rate, the margin, caps, and the stress rate used for affordability.
Common in the UK, Denmark, and Switzerland. The payment is lower, but the balance does not fall and you still owe the principal at the end of the IO period unless you repay it from other assets.
The UK term for a fully amortizing mortgage. A split mortgage puts part of the balance on repayment and part on interest-only.
Closing costs divided by the monthly payment reduction. If you might move or refinance again before that date, the new loan may not pay for itself.
Paying half the monthly installment every two weeks results in 13 full payments per year — effectively one extra monthly payment — which shortens the term.
If prices fall, LTV can exceed 100%. That makes refinancing and selling harder. A larger down payment and conservative price assumptions reduce the risk.
Australia, Canada, Hong Kong and others qualify you at a stressed rate (advertised rate plus a buffer, or a floor). The payment you are approved for is higher than today's payment.
The UK and Ireland commonly cap borrowing around 4–4.5× annual income (with exceptions). This can bind before a DTI test does.
Regulations by the Central Bank of Ireland setting Loan-to-Income (LTI) limits at 4.0× gross annual income for first-time buyers (3.5× for second and subsequent buyers) and Loan-to-Value (LTV) limits at 90% for principal homes (70% for buy-to-let). Lenders have a 15% flexibility allowance.
Short-term financing in Ireland allowing homeowners to purchase a new principal home before completing the sale of their current property, with a maximum term of 18 months, no capital repayments during the term, and repayment from sale proceeds.
The standard German home loan combining interest and an initial principal repayment rate (Anfängliche Tilgung, usually 1.5%–3%). As the remaining balance falls, the interest share decreases and the principal amortization share increases, maintaining a constant monthly installment.
In Germany, mortgage rates are fixed for 5, 10, 15, or 20 years (Zinsbindung). After this period, the remaining balance (Restschuld) must be repaid or refinanced via follow-up financing (Anschlussfinanzierung).
Additional acquisition costs when buying German real estate (typically 8%–12% of purchase price), including property transfer tax (Grunderwerbsteuer, 3.5%–6.5%), notary & land registry fees (~1.5%–2%), and real estate agent commission (Maklerprovision, up to 3.57%).
Interest-only and some auto loans leave a lump sum at term. Plan how you will repay or refinance it; do not treat the low monthly payment as the full cost.
Rent-vs-buy math has to count the return you give up by locking cash in a house, not just the mortgage rate. That is why the renter's invested down payment appears in the comparison.