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mortgage glossary

A B C D E F G H I J L M N O P R S T U V

Accrued interest

Interest that has been accumulated but not paid, adding to the amount owed. Interest accrues each month on your mortgage. That is why when you refinance, your payoff amount is higher than your current balance.

Adjustable rate mortgage (ARM)

A mortgage on which the interest rate, after an initial period, can be changed by the lender. The initial rate for an ARM may be significantly lower than the current going rate for a fixed rate mortgage but could potentially be much higher after the specified initial period is over.

Amortization

The repayment of principal from scheduled mortgage payments that exceed the interest due. The scheduled payment less the interest equals amortization. The loan balance declines by the amount of the scheduled payment, plus the amount of any extra payment.

Application

A request for a loan that includes the information about the potential borrower, the property and the requested loan that the solicited lender needs to make a decision. In a narrower sense, the application refers to a standardized application form called the “1003″ which the borrower is obliged to fill out.

Annual percentage rate (APR)

It is a measure of credit cost to the borrower that takes account of the interest rate, points, and flat dollar charges by the lender. The charges covered by the APR also include mortgage insurance premiums, but not other payments to third parties, such as payments to title insurers or appraisers. The APR is adjusted for the time value of money, so that dollars paid by the borrower up-front carry a heavier weight than dollars paid in the future. However, the APR is calculated on the assumption that the loan runs to term, and is therefore potentially deceptive for borrowers with short time horizons.

Appraisal

An assessment of the value of a home performed by a licensed professional. Several factors play into determining a homes value. They include, but are not limited to: square footage of the home, comparable sales in the area, the condition of the home, geographical location,

Assumable mortgage

A mortgage contract that allows, or does not prohibit, a creditworthy buyer from assuming the mortgage contract of the seller. Assuming a loan will save the buyer money if the rate on the existing loan is below the current market rate, and closing costs are avoided as well.

Automated underwriting

A computer-driven process for informing the loan applicant very quickly, sometimes within a few minutes, whether the applicant will be approved, or whether the application will be forwarded to an underwriter. The quick decision is based on information provided by the applicant, which is subject to later verification, and other information retrieved electronically including information about the borrower’s credit history and the subject property.