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 Mortage).

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.

Repayment of a loan in equal 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.

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

Balloon Payment
A lump sum principal due at the end of some mortgage or other long-term loans.

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 toenter into a contract for the sale of real estate.

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

Covenants, Condition, and Restrictions. A document that controls the use, requirements and restrictions of a property.

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

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.

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

A condition that must be satisfied before a contract is 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.

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

Certified Residential Broker (CRB)
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 five required Residential Division courses.


An acceleration clause that requires 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.

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

FHA Loan
A loan insured by the Insuring Office of the Department of Housing and Urban Development; the Federal Housing Administration.

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

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

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

Graduated Realtors Institute (GRI)
A professional designation to a member to the National Association of Realtors who has successfully completed three courses covering Law, Finance, and principles of Real Estate.

Home Inspection Report
A qualified inspector’s report on a property’s overall condition. The reportusually includes an evaluation of both the structure and mechanical systems.

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


A measure of interest rate changes used to determine changes in an ARM’s interest rate over the term of the loan.

Joint Tenancy
An 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.

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.

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

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

Negative Amortization
Negative amortization occurs when monthly payment 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 payment cap that results in monthly payments that aren’t high enough to cover the interest.


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

Principal, Interest, Taxes, and Insurance

Planned Unit Development (PUD)
A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas.  Uses may be residential, commercial, or industrial.

An amount equal to 1 percent of the principal amount of the investment ofnote. 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 mortgagor who pays a loan before it is due.  Not allowed forFHA 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 purchase agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also calleda sales contract, earnest money contract, or agreement for sale.

A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors.

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

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

Title Insurance Policy
A policy that protects the purchaser, mortgage or other party against losses.


VA Loan
A loan that is partially guaranteed by the Veterans Administration and made by a private lender.