Loan documents are written in a dialect designed to be skimmed. These are the dozen terms that actually move money, in plain language.
Interest rate vs APR
The interest rate is what the amortization formula uses — it determines your payment and total interest. The APR folds in lender fees and points to express the all-in yearly cost; it exists so you can compare offers with different fee structures. Rule of thumb: compute with the rate, shop with the APR. A big gap between them means heavy fees.
Principal
The amount you actually owe. Every dollar of payment is either interest (rent on the principal) or principal reduction. "Principal-only" extra payments are the lever behind the extra payment calculator.
Amortization
The schedule dividing each fixed payment between interest and principal — front-loaded toward interest. Full explainer: how amortization works.
Escrow
A holding account your servicer runs alongside the loan, collecting property taxes and insurance with each payment and paying the bills for you. Escrow changes your monthly outlay but has nothing to do with interest — which is why our calculators exclude it.
Points
Prepaid interest: one point = 1% of the loan, paid at closing to buy a lower rate. Whether points pay off is a break-even question, same shape as a refinance — divide the cost by the monthly saving and compare to how long you'll keep the loan.
PMI / MIP
PMI is insurance protecting the lender on conventional loans with under 20% down — removable under federal rules (find your dates). MIP is the FHA equivalent, usually permanent without a refinance.
Recast
A large lump-sum principal payment followed by the lender re-computing your payment over the same remaining term. Payment drops; term doesn't. Cheap (often ~$250) and underused — the alternative, extra payments without recasting, keeps the payment and shortens the term instead.
LTV (loan-to-value)
Balance ÷ home value. It gates PMI removal (80%/78%), refinance pricing, and home-equity borrowing.
Crossover point
Our term for the month your payment first contains more principal than interest — marked on every chart on this site. Earlier is better; extra payments drag it toward you.
Term-reset trap
Refinancing into a longer term than you have remaining: payment falls, lifetime cost can rise. The refinance calculator flags it automatically.
Fixed vs adjustable rate (ARM)
A fixed rate locks the amortization schedule for the life of the loan. An ARM fixes it only for an initial period (5, 7, 10 years), after which the rate — and your payment — adjusts with the market, subject to caps. Every calculator on this site models fixed rates; an ARM schedule past its first reset is an estimate by definition.
Origination fee
The lender's charge for making the loan, typically 0.5–1%. It lives in the APR but not the rate — a major reason the two numbers diverge.
Prepayment penalty
A fee some loans charge for paying off early. Rare on US mortgages since 2014, still common on some personal and auto loans — check before aiming the extra payment calculator at anything.
DTI (debt-to-income)
Your monthly debt payments divided by gross monthly income; lenders typically want total DTI under ~36–43%. Note it's computed on the required payment — one reason a 30-year loan qualifies more easily than a 15.
Principal curtailment
The formal name for an extra principal payment. Worth knowing because it's the phrase that makes a servicer's phone agent apply your money correctly — "apply this as a principal curtailment, not as an advance payment."
Simple vs amortized interest
Simple-interest loans accrue daily on the balance with no fixed schedule split; amortized loans follow the fixed-payment structure described throughout this site. Most mortgages and auto loans are amortized; some personal loans and nearly all payday products are simple (and the daily accrual is where their pain lives).
Total interest
The sum of every interest charge over a loan's life — the difference between what you borrow and what you repay, and the number this entire site is built to surface. Every term above is, one way or another, a lever on it. Compute yours in the total interest calculator.