Glossary of Terms -
A
Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is adjusted periodically according to a preselected index. Adjustments may occur at different intervals depending upon the loan program. Some adjust yearly while others may stay fixed for a term of one, three, five or seven years then adjust yearly. The terms, adjustment schedule and index that the loan is based upon vary by loan program. To protect the borrower, caps are put into place to limit the amount of payment adjustment.
Amortization - A gradual debt reduction of the amount borrowed. This is accomplished by making installment payments (usually monthly) according to a predetermined schedule.
Annual Percentage Rate (APR) - The total cost of credit on a yearly basis expressed as a percentage. It takes into account the total cost of the loan including origination fee, points, prepaid interest, etc. The APR is typically higher than the note rate.
Appraisal - A written report made by a licensed person as to the current estimate of value. The term also refers to the process by which this estimate is obtained. The loan-to-value is usually based on the appraisal value not the sales price.