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Annual percentage rate – the rate that reflects the actual annual cost of a loan and includes the loan interest rate, private mortgage insurance, points and some fees, including origination fees.

Initial interest rate on a fixed rate loan – it is the rate for the entire life of the loan. On an adjustable rate loan it is the interest rate that is fixed for some specified number of months at the beginning of the loan term.

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $100,000, one point means you pay $1000 to the lender. These points are usually collected at closing and may be paid by the borrower or the home seller, or may be split between them. You can pay points at closing to receive a lower interest rate, or you can choose to have points paid to you (also known as a lender credit) and use them to cover some of your closing costs. (negative points means a higher interest rate).

See below for the assumption made for this payment example.