Adjustable-rate
mortgage (ARM)
A mortgage or home equity loan in which your interest rate and monthly
payments may change periodically during the life of the loan, based
on the fluctuation of an index. Lenders may charge a lower interest
rate for the initial period of the loan. Most ARMs have a rate cap
that limits the amount the interest rate can change, both in an adjustment
period, and over the life of the loan. Also called a variable-rate
mortgage.
Amortization
The gradual reduction in the principal amount owed on a debt. During
the earlier years, most of each payment is applied toward the interest
owed. During the final years of the loan, payment amounts are applied
almost exclusively to the remaining principal, unless there has
been negative amortization.
Amortization
table
A time table or schedule to give you a breakdown of your monthly
payments into principal and interest. You can use this schedule
to figure out the amount of principal you'll repay during your mortgage
term.
Amortization
term
The amount of time required to amortize (or pay off) the loan. The
amortization term is expressed in months. For example, for a 15-year
fixed-rate mortgage, the amortization term is 180 months.
Annual fee
An annual amount you pay for having an open line of credit.
Annual adjustment
cap
A limit on how much the variable interest rate on a loan can increase
or decrease each year.
Annual percentage
rate (APR)
The annual cost of a loan to a borrower. Like an interest rate,
the APR is expressed as a percentage of the loan amount. Unlike
an interest rate, however, it includes other charges or fees to
reflect the total cost of the loan. The Federal Truth in Lending
Act requires that every consumer loan agreement disclose the APR.
Since all lenders must follow the same rules to ensure the accuracy
of the APR, borrowers can use the APR as a good basis for comparing
certain costs of loans.
Application
fees
Non-refundable fees paid when you apply for your loan. They may
include charges for property appraisal, a credit profile and so
forth.
Appraisal or
appraised value
An informed estimate of the value of property. When made in connection
with an application for a loan secured by a home, it's usually made
by a professional appraiser. It's sometimes called a property valuation.
Appraisal fee
The charge for estimating the value of property.
Appreciation
An increase in the value of property over time. Important factors
in a home's appreciation are its location and condition, and the
selling price of similar homes in the area. Appreciation increases
the amount of equity, which may also increase the amount you can
borrow for a home equity loan or line of credit. The opposite of
depreciation.
Asset
Property or a possession of value that a lender may be willing to
accept as collateral to secure repayment of debt. For example, real
estate, stocks, mutual funds, cash and automobiles are all assets.
Assumable
When you sell your home, your buyer may be able to qualify to take
over your existing mortgage at your current rate. This can be beneficial
if interest rates have risen above the rate you're currently paying
on your mortgage. The lower-interest rate benefit may make your
home more affordable to prospective homebuyers.
Available funds
The total amount of funds available to you from your own funds and/or
other sources that can be used for your down payment and the closing
costs associated with a loan.
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