Adjustable Rate Mortgage (ARM): A mortgage with an interest rate the 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).

Adjustment Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.

Amortization: Repayment of a loan in installments of principal and interest, rather the interest-only payments.

Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.

Assumption of Mortgage: A buyer’s agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.

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 acknowledgment of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.

Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

CC&R’s: Covenants, conditions and restrictions. A document that controls the use, requirement and restrictions of a property.

Certificate of Reasonable Value (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Closing Costs: Escrow fees, title insurance premium, deed recording fee, title transfer tax, etc., paid at close of loan.

Closing Statement: The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

Condominium: A form of real estate ownership where the owner receives title to a particular unit and has proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries.

Contingency: A condition that must be satisfied before a contract in binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Conversion Clause: A provision in some ARMs that enables you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages. This conversion feature may cost extra.

Convertible ARM - A type of loan that starts as an ARM, but can be converted to fixed rate at customer’s request.

Cooperative: A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

CRB: Certified Residential Broker. To be certified, a broker must be a member of the National Association of REALTORS®, have five years experience as a licensed broker and have completed required Residential Division courses.

CRS: Certified Residential Specialist. To be certified, a REALTOR® must be a member of the National Association of REALTORS®, have five years experience as a licensed sales agent, have completed at least 100 transactions and have completed required Residential Division courses.

Due-On-Sale Clause: A clause that required full payment of mortgage or deed of trust when the secured property changes ownership.

Earnest Money: The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.

Escrow: A procedure in which a third party acts as a stakeholder for both the buyer and seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds.

Fannie Mae (FNMA, Federal National Mortgage Association): A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgage insured by FHA or guaranteed by the VA as well as conventional home mortgages.

Fee simple: An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

FHA Loan: A loan insured by the Federal Housing Administration (of the Department of Housing and Urban Development).

Finance Change: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.

Fully Indexed Rate: Sum of index plus margin on adjustable rate mortgage.

Graduated Payment Mortgage: A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

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 Principals of Real Estate.

Home Inspection Report: A qualified inspectors’ report on property’s overall condition. The report usually includes an evaluation of both the construction and mechanical systems.

Home Warranty Plan: Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.

Index: A measure of interest rate changes used to determine changes in an ARMs interest rate over the term of the loan.

Joint Tenancy: Equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent’s interest in the property.

Lien: A legal hold or claim on property as security for a debt or charge.

Loan Commitment: A written promise to make a loan for a specified amount on specified terms.

Loan-To-Value Ratio: The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value. Obtained by dividing the loan amount by the purchase price or by the appraised value of the home, whichever is less.

Margin: Also called spread. The number of percentage points a lender adds to the index rate to calculate the ARM interest rate at each adjustment. Expressed as a percentage.

Mortgage Life Insurance: A type of life insurance often bought by home buyers. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the mortgage debt is automatically covered by insurance proceeds.

Negation Amortization: Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn’t covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a prepayment cap that results in monthly payments that are not high enough to cover the interest.

Origination Fee: A fee or charge for work involved in evaluation, preparing, and submitting a proposed mortgage loan. The fee is limited to 1 percent for FHA and VA loans.

PITI: Principal, Interest, Taxes and Insurance. Added together to make up the total monthly payment.

Point: The charge for obtaining a loan. One point is equal to one percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.

Prepayment Penalty: A fee charged to a borrower who pays a loan before it is due. Not allowed for FHA and 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 the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract or agreement for sale.

REALTOR®: A real estate broker or associate active in a local real estate board affiliated with the Nat. Assoc. of REALTORS®.

Regulation Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

Tenancy in Common: A type of joint ownership of property to two or more persons with no right of survivorship.

Title Insurance Policy: A required policy that protects the purchaser, mortgagee or other party against losses and to ensure that the title is free of liens.