Glossary

Abbreviation for principal and interest.

Principal, Interest, Taxes, and Insurance

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $95,000, one point means you pay $950 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield on the mortgage and to cover loan closing costs. These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

Tentative establishment of a borrower's qualification for a mortgage loan amount of a specific range, based on the borrower's assets, debts, and income.

Payment of the mortgage loan before the scheduled due date; may be subject to a prepayment penalty.

The interest rate commercial banks charge their most creditworthy customers.

The amount of money borrowed that has not yet been paid back to the lender. This does not include the interest paid to borrow that money. In other words, principal is the original loan amount minus the total repayments of principal made.

Insurance purchased by a buyer to protect the lender in the event of default. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance may be available through a government agency, such as the Federal Housing Administration (FHA) or the Veterans Administration (VA), or through private mortgage insurance companies (PMI).

A tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of assessed value of the property.

To proportionally divide amounts owed by the buyer and the seller at closing.