Glossary

A
Adjustment period.
The frequency with which your mortgage rate will be reset after the initial fixed-rate period. This applies only if your mortgage is an adjustable-rate mortgage(ARM).
C
Closing costs.
These costs include lender fees, title fees, appraisal fess, mortgage interest for the period between the closing date and the first mortgage payment, prorated property taxes, etc. They are the sum of money you have to bring to closing, in addition to your down payment. Typically, these costs are about 2 percent to 5 percent of the home’s purchase price.
CPI inflation.
The rate of inflation as measured by the Consumer Price Index, which is reported by the Bureau of Labor Statistics (BLS).
D
Down payment.
The money you pay from your savings toward the purchase of the house. It determines the size of your ownership claim in the house (your equity). It excludes the closing costs.
E
Estimated highest rate over the life of the mortgage.
The highest mortgage rate you expect to pay over the life of the loan.
Estimated lowest rate over the life of the mortgage.
The lowest mortgage rate you expect to pay over the life of the loan.
Estimated maximum alternative investment yield.
The highest annual yield you expect to earn on your investments other than the home you are considering buying.
Estimated minimum alternative investment yield.
The lowest annual yield you expect to earn on your investments other than the home you are considering buying.
Expected outlook for long-term appreciation rates.
For this input to the calculator, consider your long-term expectations about the home appreciation rates. Choose Pessimistic View if you expect the appreciation rate to be closer to the lowest estimated rate, Optimistic View if you expect it to be closer to highest estimated rate, and Neutral View if you expect the rate to fall somewhere in the middle of the range.
Expected outlook for short-term appreciation rates.
For this input to the calculator, consider your expectations about the home appreciation rates in the next three years. Choose Pessimistic View if you expect the appreciation rate to be closer to the lowest estimated rate, Optimistic View if you expect it to be closer to highest estimated rate, and Neutral View if you expect the rate to fall somewhere in the middle of the range.
Extra payments.
These are payments borrowers make above the required monthly mortgage payment.
F
Fixed or adjustable-rate mortgage(ARM).
Refers to whether the mortgage has a fixed or adjustable rate. In fixed rate mortgage, the interest rate is locked for the life of the mortgage. As long as you make your payments on time, the payment amount will be the same every month; it will never increase or decrease. In the case of an adjustable-rate mortgage, the interest rate, and therefore, monthly payments, will vary throughout the life of the mortgage based on a market rate. These loans typically have an initial fixed-rate period that may last one to five years.
Floor.
The lowest rate the adjustable interest rate on your mortgage can be reset to. This applies only to adjustable-rate mortgages (ARMs).
H
Homeowner association fee.
Buying and owning a home in some housing developments requires the owner to be a member of a homeowners association, to which dues must be paid. Depending on whether your home is in a development maintained by an association, you might or might not have this fee.
Homeowner’s insurance.
This insurance protects the homeowner against any accidents (such as fire, floods, etc.) that may hit the property.
I
I/O period.
Refers to the “interest-only” period, in which a borrower is required to make only interest payments, without the obligation to pay down the loan principal.
Initial adjustment cap.
The level that the rate on an adjustable-rate mortgage cannot be set above when the rate is reset for the first time. This applies only to adjustable-rate mortgages (ARMs).
Initial fixed-rate period.
This is the duration of the initial fixed-rate period of an adjustable-rate mortgage (ARM). During this period, the interest rate cannot be changed.
Initial mortgage rate.
The interest rate during the initial fixed-rate period of an adjustable rate mortgage.
L
Length of mortgage.
The time it will take to fully pay off the mortgage (usually 15, 20, or 30 years), assuming you make no extra payments on top of your regular mortgage payment.
Length of time you will own the home.
The length of time you expect to live in the house. Buying and selling a home entails large transaction costs that you would want to recoup through home appreciation. The longer you stay in the house, the lower the annual appreciation is that you need to recover those expenses over time.
Lifetime cap.
The highest rate an adjustable-interest rate on your mortgage can be reset to.
Long-term estimated minimum annual appreciation.
The lowest annual appreciation rate you expect to see in the value of your home after the first three years of ownership.
Long-term estimated maximum annual appreciation.
The highest annual appreciation rate you expect to see in the value of the home after the first three years.
M
Maintenance costs.
This refers to the expenses that will be necessary to keep the property in good shape every year. For the rent-or-buy calculator, you need to estimate these expenses. They might include small things such as fixing leaky faucets or big things such as replacing the roof. A good rule of thumb is to assume a maintenance cost of 2 percent of a home's value every year. In most years, you will spend less than that amount, but in some years, your expenses will be much larger than 2 percent. But on average, 2 percent per year is a good guess. So for the first year, calculator will calculate the amount of expenses based on the percentage of home value that you specify (for example, 2% of home value) and from second year onwards it uses this amount (i.e. from the first year) and adjusts it using CPI inflation every year. So the maintenance costs will not fluctuate with the home value over time.
Marginal income tax rate.
The tax rate that is applied to each additional dollar income depending on the tax bracket your income falls in. More information is available on the website of the Internal Revenue Service (IRS).
Mortgage rate.
For fixed rate mortgage, this will be the interest rate for the life of the loan.
O
Outlook for future investment yields.
Depending on your expectations of the future investment yields, choose Pessimistic View if you expect the investment yield to be closer to the minimum estimated yield, Optimistic View if you expect it to be closer to highest estimated yield, and Neutral View if you expect the yields to fall somewhere in the middle of the range.
Outlook for future mortgage rates.
Depending on your expectations of the future mortgage rates, choose Minimum Rate if you expect the mortgage rate to be closer to the lowest estimated rate, Maximum Rate if you expect it to be closer to highest estimated yield, and Neutral View if you expect the rate to fall somewhere in the middle of the rage.
P
Points.
Points are prepaid portions of the total interest due on loan. They are paid when the loan is closed, or finalized (1 point equals 1 percent of the loan amount). Paying points results in a lower mortgage rate than a borrower could get without them.
Private Mortgage Insurance (PMI).
You will normally be required to pay an insurance premium to protect your lender from your default if your down payment is less than 20 percent of the purchase price. The payments will stop when the loan-to-value ratio drops below 78 percent. Some lenders do not require this insurance but will charge you a higher mortgage rate.
Property tax.
The tax paid on the home and property to the local government. It is expressed in some percentage of the home’s value. It usually averages 1 percent to 3 percent of the home’s value per year.
Purchase price.
The price of the house that you are considering buying.
R
Rate adjustment cap.
The level that the rate on your adjustable-rate mortgage cannot be set above when the rate is reset for the first time.
Rent.
The monthly amount you pay to rent a home. When using our calculator, think of it as the amount you would pay to rent a home if you didn’t buy one.
Renter’s insurance (personal property insurance).
This insurance protects the renter against any accidents (such as fire, floods, etc.) that cause damage to the possessions in the home.The cost of this insurance is expressed as a percentage of the monthly rent, and it is assumed to increase with rent inflation.
Rent inflation.
The annual change in rents.
S
Short-term estimated minimum annual appreciation.
The lowest annual rate of appreciation you expect to see in the value of your home in the first three years after your purchase.
Short-term estimated maximum annual appreciation.
The highest annual rate of appreciation you expect to see in the value of your home in the first three years after your purchase.