Glossary
Amortization
The schedule that splits each payment between interest and principal. Early payments are mostly interest; the balance flips near the end of the term.
On an amortizing loan every payment is the same size, but its split shifts over time. At the start most of each payment covers interest on a large balance; as the balance shrinks, more of each payment goes to principal. This front-loading of interest is why paying extra early, or choosing a shorter term, saves so much — and why a loan barely dents its balance in the first few years.
Related terms
- DTI Debt-to-income ratio: monthly debt payments divided by gross monthly income. Most lenders draw the line at 36–43%.
- Deed of trust A three-party document (borrower, lender, trustee) some states use instead of a mortgage to secure a home loan against the property.
- Unsecured A loan that requires no collateral — approval rests on your credit profile and income.
- APR Annual percentage rate — the interest rate plus mandatory fees, expressed as one yearly cost. The only honest way to compare two loan offers.
- Jumbo loan A mortgage larger than the conforming loan limit, which cannot be bought by Fannie Mae or Freddie Mac — so it carries stricter terms.
- Line of credit A revolving credit limit you can draw from, repay, and draw again — you pay interest only on what you actually use.