Many of the pages on this website assume that you know the basic words and concepts involved in refinancing. If your initial mortgage was several years ago and you need a refresher, or if you feel you never really learned all you needed to know the first time, I’ll be more than happy to give you a quick introductory course.

Basically, a loan of any kind is an agreement between someone who has money (a lender) and someone who needs money (a borrower). The lender buys the thing that the borrower wants (whether it’s a home, a car, or smaller purchases on a credit card, for example) and the borrower pays the lender back over time.

The time that it takes to pay back the loan is known as the term. For mortgages, you most often see 15 or 30 year terms; for things like credit cards and lines of credit, you simply keep paying until the debt is settled (there’s typically a minimum payment involved, of course).

The full amount of the loan is usually known as the principal. Of course, the lender wants something extra for their service. Most of this extra is called interest, which is a percentage of the principal.

The exact size of that percentage is called the rate. So a $100,000 loan with a 10% interest rate will ideally cost you $110,000 overall…but interest is calculated in different ways for different purposes. Some interest rates are calculated per year, some per month, and some per period (I’ll talk more about that when we get to the section about adjustable rate mortgages).

Other extra things that you’ll pay for include federal or local taxes, as well as fees and charges specific to the particular loan or lender that you’re dealing with. Another common cost is insurance, which is basically the lender’s way of hedging their bets in case you stop making payments (a situation called default).

These extra costs may be paid up front (i.e., when you first take out the loan) or included in the regular payments and satisfied over time, as with interest. Most loans use some combination of the two, tailored to the borrower’s needs.