Apply Now My Account

Understanding your monthly payment & the terms associated with it

As first-time homebuyers begin searching for a home, one of the most frequent questions they ask themselves early on is, “What can I afford?”

Answering that question involves far more than just the price of a home. Other factors must be considered, from the interest rate to the type of loan to the taxes and insurance.

When using Guaranteed Rate’s Intuitive Loan Finder, not only can you sort your options by the lowest monthly payment, lowest interest rate and the right loan term, you’ll also see a transparent breakdown that estimates what you’ll owe each month. And, all it takes is about a minute.

For those of you who are new to the home-buying process, the following is a glossary that covers the basic mortgage terms you’ll see as you shop around for the right home loan.

Adjustable rate mortgage (ARM): Mortgage in which the rate of interest is adjusted based on a standard rate index. Most ARMs have caps on how much the interest rate may increase.

Annual percentage rate (APR): A standardized method of calculating the cost of a mortgage, stated as a yearly rate, which includes such items as interest, mortgage insurance and certain points or credit costs.

Federal Housing Administration (FHA) mortgage: An agency of the U.S. Department of Housing and Urban Development that insures residential mortgage loans made by private lenders.

Fees (or credits): Additional 3rd party fees or credits toward your down payment. Lenders can provide credits to help lower the down payment by slightly increasing the interest rate.

Fixed rate mortgage: A mortgage in which the interest rate does not change during the entire term of the loan, most often 15 or 30 years.

Interest rate: A rate charged to the borrower each period for the loan of money.

Lender costs: Include charges for document preparation, underwriting and origination.

Loan estimate: A three-page disclosure that replaces and integrates the Good Faith Estimate and Truth-in-Lending disclosure into one disclosure.

Mortgage insurance: A policy that insures the lender against loss should the homeowner default on a mortgage. It is part of the monthly mortgage payment.

Principal: The term used to describe the amount of money that is borrowed for a mortgage. The principal amount that is owed will go down when borrowers make regular payments.

Private mortgage insurance (PMI): Insurance that protects mortgage lenders against default on loans by providing a way for mortgage companies to recoup the costs of foreclosure. PMI is usually required if the down payment is less than 20% of the sale price. Homebuyers pay for the coverage in monthly installments. PMI is usually terminated when the homebuyer has built up 20% equity in the property.

Taxes and insurance: Includes estimated property taxes and homeowner’s insurance.

Veterans Affairs (VA) mortgage: A loan backed by the U.S. Department of Veterans Affairs. It requires very low or no down payment and has less stringent requirements for qualification. Members of the U.S. armed forces are eligible for the loans under certain qualifying conditions.


Your mortgage. Your way.

Get started on your Digital Mortgage!
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate, Inc. does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate, Inc. Guaranteed Rate, Inc. its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.