Loan & Mortgage Related Glossary

Money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.

Any mortgage that does not have a fixed interest rate and fixed payments for the term of the loan, or does not amortize to zero at the end of the set term, when all required payments are made on time. (AMLs include ARMs, Buydowns, GEMs, GPARMs, and other mortgage types.)

Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.

A credit rating where the FICO score is 660 or above. There have been no late mortgage payments within a 12-month period. This is the best credit rating to have when entering into a new loan.

The American Society of Home Inspectors is a professional association of independent home inspectors. Phone: (800) 743-2744

A payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.

A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.

When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. An assumable mortgage can help you attract buyers if you sell your home.

A provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.

A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.

Arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time.

A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.

The final lump sum payment due at the end of a balloon mortgage.

A federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

A mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.

FICO scores from 620 - 659. Factors include two 30 day late mortgage payments and two to three 30 day late installment loan payments in the last 12 months. No delinquencies over 60 days are allowed. Should be two to four years since a bankruptcy. Also referred to as Sub-Prime.

A short-term loan paid back relatively fast. Normally used until a long-term loan can be processed.

A licensed individual or firm that charges a fee to serve as the mediator between the buyer and seller. Mortgage brokers are individuals in the business of arranging funding or negotiating contracts for a client, but who does not loan the money. A real estate broker is someone who helps find a house.

The seller pays an amount to the lender so the lender provides a lower rate and lower payments many times for an ARM. The seller may increase the sales price to cover the cost of the buy down.

A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.