Loan Definitions


Loan amount  The total amount for this loan. 
Interest rate  The interest rate on this loan. 
Loan term  The number of years over which you will repay this loan. The most common terms are 15 years and 30 years. If this loan has a balloon payment, the term will be shorter than the number of years to amortize the loan or pay it down to zero. For example, a loan with a 5 year term amortized over 30 years will have the same monthly payment as a 30 year loan with the same interest rate. The difference is the 30 year loan will have equal payments for 30 years. The 5 year loan will have equal payments for 5 years and then a very large, or balloon, payment for the remaining balance, which may be refinanced. 
Amortization  The number of years used in calculating the monthly payment. Loans that are amortized over a longer period than their loan term have a balloon payment. See "Loan term" for more information. 
Origination fee  The amount charged as a loan origination fee which is included in the APR calculation. For many loans a 1% origination fee is common. For example, a 1% fee on a $120,000 loan would cost $1200. 
Commitment fee  An upfront fee included in the APR calculation. 
Other fees  Any other fees that should be included in the APR calculation. These fees can vary by lender, but at a minimum usually include prepaid interest. 
Other costs  Any other costs that should be included in the APR calculation. 
Monthly loan payment  Monthly principal and interest payment (PI). 
Annual percentage rate (APR) 
A standard calculation used by lenders. It is designed to help borrowers compare different loan options. For example, a loan with a lower stated interest rate may be a bad value if its fees are too high. Likewise, a loan with a higher stated rate with very low fees could be an exceptional value. APR calculations incorporate these fees into a single rate. You can then compare loans with different fees, rates or different terms. 
Balloon payment  This is the total final payment for all loans that are amortized over a period that is longer than the loan term. The balloon payment is total interest and principal balance due at the end of the loan term. (If the loan term is the same as the amortization this amount is always zero.) 