A mortgage is another word for a home loan. Mortgages are designed to help people purchase real estate where there is an existing home or for building a new home. When you take out a mortgage, you’re borrowing money from a financial institution with the promise to repay the loan over time. It’s secure home financing that can help people achieve their homeownership goals and dreams.

On a Conventional mortgage, when your down payment is less than 20% of the purchase price of the home, your mortgage lender will require you to get private mortgage insurance (PMI) to protect them in case you default on your mortgage. Some borrowers have to pay up to one year’s worth of PMI premiums at closing, which can cost several hundred dollars. The best way to avoid this extra expense is to make a 20% down payment or ask about other loan program options.

The market can be unpredictable. From the day you apply for a mortgage to the day you close, mortgage rates could change. And if they rise, it can increase your payment dramatically. That’s why mortgage lenders offer the ability to “lock in” your interest rate. This guarantees a specific rate for a period of time, usually 30 to 60 days and sometimes for a fee. Locking in your interest rate helps you get a great rate even if the market shifts.

Your annual percentage rate (APR) is the total yearly cost of your mortgage expressed as a percentage. Not to be confused with interest rate. APR gives you a bigger picture of what it costs to finance your loan by accounting for the interest rate and finance charges. This is also why your APR is likely to be higher than the rate stated on your mortgage. What’s great about APR is that, by comparing APRs from different lenders, home buyers can get an idea of the true cost to borrow. And, it prevents lenders from advertising a low rate while hiding fees.

A point (also called discount point) is a percentage of the loan amount. One point equals 1% of the loan. That means one point on a $100,000 loan is equal to $1,000. Points are fees a borrower can pay the lender at closing to buy down the mortgage interest rate.

As a general rule of thumb, it’s a good time to refinance when mortgage rates are 2% lower than your current rate. But any reduction can lower your monthly mortgage payments. For example, on a 30-year $200,000 loan with a 5% interest rate, your payment (excluding taxes and insurance) would be about $1,074 per month. But if you refinanced and lowered your rate to 3%, your new monthly payment would be about $843, saving you roughly $231 per month. Check out our refinance calculator to estimate your savings. And you can always talk to a loan officer if you want help calculating savings and weighing your options.