The terms below are the ones that come up when you decide to pay extra on a U.S. mortgage. Definitions are plain-English and focused on how each concept affects prepayment. For the formulas behind the numbers, see our methodology page.
Loan structure
Principal
The amount you actually owe — the balance the loan is calculated against. Extra payments only save interest if they reduce principal. Every dollar of principal removed stops accruing interest for the rest of the loan.
Interest
The lender's charge for the loan, calculated each period on the outstanding principal. On a U.S. fixed loan, the monthly interest is the balance times (annual rate ÷ 12).
Amortization
The process of paying a loan down to zero through regular level payments, where each payment is split between interest and principal. Early payments are mostly interest; later payments are mostly principal. Extra principal shifts that mix in your favor sooner. See how extra payments work.
Amortization schedule
The month-by-month table showing each payment's interest, principal, and remaining balance for the life of the loan. Our calculator generates one with and without your extra payments.
Term
The scheduled length of the loan (commonly 15 or 30 years). Extra payments shorten the effective term on a fixed loan; they do not change the contractual term.
Fixed-rate mortgage
The interest rate and scheduled payment stay the same for the whole term. Extra principal shortens the loan but never changes the payment.
Adjustable-rate mortgage (ARM)
The rate is fixed for an initial period, then adjusts periodically based on an index plus a margin, within caps. At each adjustment the balance is re-amortized, so extra principal you paid earlier produces a lower recalculated payment. See ARM vs. fixed and extra payments.
Promissory note ("the note")
The document you signed promising to repay the loan. It contains your rate, term, payment, and any prepayment penalty. Check it before making large extra payments.
Paying extra
Prepayment
Paying more than your scheduled amount. Can be a recurring monthly extra, an annual extra, or a one-time lump sum.
Principal curtailment
The servicer's term for a payment applied directly to principal, separate from the scheduled payment. This is what you want your extra money labeled as.
Additional principal
The field on most payment portals where you enter extra money so it reduces the balance rather than being treated as a future payment.
Lump sum payment
A single large extra payment. Its interest savings depend heavily on timing — earlier saves far more. Model it with the lump sum calculator.
Accelerated bi-weekly payment
Paying half your monthly payment every two weeks, which produces 26 half-payments — the equivalent of 13 monthly payments — per year. The 13th payment goes to principal. See the bi-weekly calculator.
"Paid ahead" / prepaid installments
When a servicer treats your extra money as your next payment(s) and advances your due date. Interest keeps accruing on the same balance, so this saves nothing. Avoid it by labeling payments "principal only." See applying extra payments to principal.
Suspense account / unapplied funds
A holding account where servicers park partial or unlabeled payments until they add up to a full payment. Money here is not reducing your principal.
Changing the payment
Recast (re-amortization)
You make a large principal payment and pay a small fee; the servicer recalculates a lower monthly payment over the remaining original term at your existing rate. Lowers the payment, keeps the payoff date. See recast vs. extra payments.
Refinance
Replacing your loan with a new one — new rate, new term, full application, closing costs (typically 2–5% of the loan). Worth it mainly when market rates are well below yours.
Cash-out refinance
A refinance for more than you owe, taking the difference in cash. One of the few ways to access equity you built through extra payments — at a cost and often a higher rate.
HELOC (home equity line of credit)
A revolving credit line secured by your home equity. Can serve as a backstop for money tied up in the house, but requires approval and can be frozen by the lender in a downturn.
Escrow, insurance and equity
Escrow account
An account the servicer uses to collect and pay your property taxes and homeowners insurance. Extra money should never go here (unless covering a shortage); it does not reduce your loan.
Escrow analysis
The annual review that adjusts the tax/insurance portion of your payment. This can change your total payment up or down independent of anything you do with principal.
Loan-to-value ratio (LTV)
Loan balance divided by property value. Extra principal lowers LTV, which can end PMI and improve refinance options.
Private mortgage insurance (PMI)
Insurance protecting the lender, required on most conventional loans with less than 20% down. Can be cancelled by request at 80% LTV (original value) and must end automatically at 78%. See removing PMI with extra payments.
Mortgage insurance premium (MIP)
FHA's version of mortgage insurance. Usually lasts the life of the loan for low-down-payment FHA borrowers — extra payments do not remove it; a refinance to conventional does.
Home equity
Property value minus what you owe. Extra payments build equity faster, but that equity is illiquid until you sell or borrow against it.
Homeowners Protection Act (HPA)
The federal law setting the 80% (borrower-requested) and 78% (automatic) LTV thresholds for conventional PMI cancellation.
Rules and penalties
Prepayment penalty
A fee some loans charge for paying off early or paying more than a set amount. Rare on U.S. fixed-rate mortgages originated after January 2014, but check your note.
Qualified Mortgage (QM) rule
A Consumer Financial Protection Bureau standard; QM loans generally cannot carry prepayment penalties beyond the first few years, and most conventional/FHA/VA loans are QM.
Ability-to-Repay (ATR)
The companion CFPB rule requiring lenders to verify you can repay. Part of why post-2014 loans rarely have penalties.
Notice of error / request for information
The formal written channels (under Regulation X) for disputing how a servicer applied a payment. Use these if a labeled principal payment is misapplied.
Servicing transfer
When your loan is sold to a new servicer. Re-send standing "apply extra to principal" instructions and verify the transferred balance.
Taxes
Mortgage interest deduction
An itemized deduction for interest on up to $750,000 of acquisition debt (post-2017 loans). Most homeowners take the standard deduction and get no benefit. See the deduction guide.
Standard deduction
The flat deduction most taxpayers take instead of itemizing. If you take it, mortgage interest does not affect your taxes and your effective mortgage rate equals the stated rate.
Acquisition debt
Debt used to buy, build, or substantially improve your home — the only mortgage debt whose interest is potentially deductible.
Effective (after-tax) interest rate
Your stated rate reduced by any real tax benefit. Only lower than the stated rate if you itemize and your interest exceeds the standard deduction.
Payoff
Payoff statement / payoff quote
The exact amount to fully satisfy the loan on a given date, including per-diem interest. Request one when you are close to done — do not guess from your balance.
Satisfaction of mortgage / lien release
The document the lender files with your county confirming the loan is paid and the lien removed. Verify it was recorded after payoff.
Escrow refund
The return of your remaining escrow balance after payoff, typically within about 20 days.