- Adjustable Rate Mortgage (ARM). A mortgage with an interest rate that changes over time in line with movements in the index. ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages).
- Amortization. Repayment of a loan in installments of principal and interest, rather than interest-only payments.
- Annual Percentage Rate (APR). The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.
- Appraisal. An estimate of the property’s value provided by a professional appraiser.
- Balloon Payment. A lump sum principal payment due at the end of some mortgages or other long-term loans.
- Binder. Sometimes known as an offer to purchase or an earnest money receipt. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.
- Buydown. Permanent – prepaid interest that brings the note rate on the loan down to a lower, permanent rate. Temporary – prepaid interest that lowers the note rate temporarily on the loan, allowing the buyer to more readily qualify and to increase payments as income grows.
- Escrow. A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution funds.
- Fixed Rate Mortgage. A conventional loan with a single interest rate for the life of the loan.
- Fully Indexed Rate. The maximum interest rate on an ARM that can be reached at the first adjustment.
- GRI Graduate, Realtors Institute.. A professional designation granted to a member of the National Association of Realtors who has successfully completed courses covering Law, Finance and Principles of Real Estate. NOTE: Laura received the GRI designation in 2001.
- Origination Fee. A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to one percent for FHA and VA loans.
- Payment Cap. The maximum amount the payment can adjust in any given time frame.
- Point. An amount equal to one percent of the principal amount of the investment or note. Lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investment.
- Prepayment Penalty. A fee charged to a borrower who pays a loan before its due. Not allowed for FHA or VA loans.
- Private Mortgage Insurance (PMI). Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.
- Purchase Agreement. A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.