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Adjustable Rate Mortgage (ARM) A loan program where the interest rate is adjusted up or down periodically based on a pre-selected index, such as Treasury Bill Rates. These rate adjustments therefore affect your monthly mortgage payment, causing the payment to go up or down. Interest rate caps limit the amount your interest rate can be adjusted, including a periodic cap (7-Year, 5-Year, 1-Year, etc.) and an overall lifetime cap (example: the interest rate cannot increase no more than 6% above the initial starting interest rate of 7%). Back to the Top Adjustment Period For an Adjustable Rate Mortgage, the scheduled periodic interest rate adjustments that occur that affect your monthly mortgage payment. Typical adjustment periods include: 1-Year, 3-Year or 5-Years depending upon the mortgage loan program selected. Back to the Top Amortization The gradual repayment of a loan in monthly installments comprised of both principal and interest components. Generally, for the first few years of the loan repayment schedule, the monthly payment is primarily comprised of interest. Gradually, the monthly principal portion of the loan payment will increase; therefore decreasing the interest portion of the payment in an equal amount. Back to the Top Amortization Schedule A timetable that shows the breakdown of the principal and interest components of each month's mortgage payment throughout the life of the loan, as well as the remaining principal balance after each payment is made. Back to the Top Annual Percentage Rate (APR) The cost of credit expressed as a yearly rate. The APR is often higher than the actual interest rate. This is because the percentage reflects the interest rate, points, origination fees, and mortgage insurance. Back to the Top Application Fee Fees charged by the lender to cover the initial costs of processing a loan, usually the expenses incurred for the order of Credit Reports and Property Appraisal. In addition, the application fee may also include a rate lock fee. Back to the Top Appraisal A written estimate provided by a certified property appraiser that verifies the current market value of the property to be mortgaged. This certified value incorporates many factors, some of which include: value/condition of comparable property types in the area which have recently sold, location of the property, real estate market activity in the area and more. Back to the Top Asset Anything of monetary value that is owned by an individual including real estate, bank accounts, stocks and other personal property. Back to the Top Assignment The transfer of property rights or ownership by one individual, assignor, to another, the assignee. Back to the Top Assumption An agreement between a buyer and seller enabling the buyer to take over payments on an existing mortgage loan. Not all mortgages can be assumed. Back to the Top Balloon Mortgage A mortgage loan that has a fixed interest rate and monthly payment amount for a specified period - generally a 7 or 10-Year program. The loan is fully-amortized for a 30-Year period with a lump Back to the Top Bankruptcy A proceeding in a Federal Court in which a debtor who owes more than his or her assets can be relieved of all or part of their debt obligations by transferring their debts to a trustee. Back to the Top Blanket Mortgage A mortgage that involves more than one parcel of real estate. Back to the Top Cash Due at Closing The total dollar amount of funds required by the borrower(s) at the time of loan settlement. Back to the Top Cash-Out Refinance A refinance transaction in which the borrower's loan amount is greater than the principal mortgage loan that is being refinanced to provide additional cash to the property owner. Back to the Top Certificate of Title Written opinion of the status of title of a property, provided by an attorney, title company or abstract company that states the title to the real estate is legally held by the current owner. Back to the Top Closing Also referred to as "settlement". A meeting that involves the lender, buyer (borrower) and/or seller to finalize the sale of a property or completion of a refinance transaction. Back to the Top Closing Costs The costs incurred by the buyer (borrower) at their loan closing for the completion of a sale of property or refinance transaction. These costs can consist of points, lender fees as well as fees that must be prepaid such as real estate tax and insurance escrow payments. Back to the Top Collateral Asset pledged as security to ensure payment or performance of an obligation. In bank lending, it is generally something of value owned by the borrower. If the borrower defaults, the asset pledged may be taken and sold by the lender to fulfill completion of the original contract. Back to the Top Commitment Letter A formal offer made by a lender stating the terms and conditions in which they agree to lend money to a borrower for the purpose of finalizing the sale of a property or completion of a refinance transaction. Back to the Top Condominium A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. Back to the Top Conventional Loan A mortgage loan type that is not insured by the FHA or guaranteed by the VA. Back to the Top Convertible ARMs A type of Adjustable Rate Mortgage loan that enables the borrower to switch or "convert" the loan to a fixed loan type, permanently. Performed during a certain time in the life of the loan. Back to the Top Conveyance A document used to effect a transfer, such as a deed or mortgage. Back to the Top Cost of Funds Index (COFI) An index that is used to determine interest rate changes for certain adjustable rate mortgage (ARM) loans. It represents the weighted-average cost of funds of depository institutions on the west coast (11th district) who are members of the Federal Home Loan Bank System. Back to the Top Credit History A record of an individual's currently open and satisfied debts. A credit history helps a lender determine whether or not an applicant has a history of paying his/her debts in a satisfactory manner. Back to the Top Credit Report A report detailing an individual's credit history prepared by a credit bureau and used by a lender in determining an applicant's creditworthiness. Back to the Top Default Failure to make payments for a debt in accordance with the agreed payment schedule required by the lender, and/or failure to meet other terms and conditions of the loan. Back to the Top Delinquency Failure to make payment for a debt in accordance with the payment due date. Back to the Top Discount Points An up-front fee paid to a lender at the time of loan closing to reduce the initial interest rate. One "point" equals 1% of the loan amount. Back to the Top Down Payment The amount of money a buyer provides for the purpose of purchasing a property. This amount is the difference between the purchase price and the new loan amount. It is paid by the buyer before or at the time of closing. Back to the Top Equal Credit Opportunity Act (ECOA) A federal law that requires creditors to grant credit equally without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. This law also requires creditors to provide written notification to a consumer whose loan application is not able to be approved as requested, including the specific reason(s) for the decision. Back to the Top Equity Line of Credit (HELOC) Refer to Home Equity Line of Credit Back to the Top Equity Loan Refer to Home Equity Loan Back to the Top Escrow Account An account established by the lender on the borrower's behalf to collect real estate tax and insurance payments along with the borrower's base principal and interest (P&I) payment. The lender then manages the disbursement of these funds on the borrower's behalf according to the escrowed items' individual payment schedule requirements. Back to the Top Estimated Market Value The estimated dollar value of your property if you were to sell it today. Back to the Top