wikiHow Calculating Mortgage Interest Glossary * Mortgage: A loan used to finance the purchase of a home or other real estate. * Principal: The amount of money borrowed to purchase the home. * Interest: The cost of borrowing money, expressed as a percentage of the principal. * Simple Interest: A type of interest calculation that is based solely on the principal amount borrowed or invested, without compounding. * Compound Interest: A type of interest calculation that includes the interest earned on the principal, as well as any interest that has been previously earned. * Amortization: The process of paying off a loan over time through regular payments, which includes both the principal and interest. * Loan Term: The length of time over which the mortgage loan will be repaid, typically measured in years. * Interest Rate: The percentage at which interest is charged on the mortgage loan, typically expressed as an annual percentage rate (APR). * Annual Percentage Rate (APR): The interest rate charged on a loan or investment on an annual basis, including any fees or charges associated with the loan or investment. * Points: Fees paid to a lender at closing to lower the interest rate on a mortgage loan. * Down Payment: The amount of money paid up front by the borrower to purchase the home, typically a percentage of the home's purchase price. * Private Mortgage Insurance (PMI): Insurance that protects the lender in case the borrower defaults on the loan, typically required if the down payment is less than 20% of the home's purchase price. * Closing Costs: Fees associated with finalizing the purchase of the home, including fees paid to the lender, title company, and government agencies. * Escrow Account: An account set up by the lender to hold funds for property taxes and homeowner's insurance, which are typically paid on an annual or semi-annual basis. * Refinance: The process of replacing an existing mortgage loan with a new loan that has different terms, typically to lower the interest rate or payment amount. Page