Palmbeachpost.com
Friday, July 30, 2004

Adjustable-rate mortgage (ARM). A mortgage on which the interest rate may change, increasing or decreasing, according to movements in the financial markets.

Amortization. A payment method that involves paying off part of the principal along with the interest, instead of making interest-only payments. Amortization can speed up loan payments and decrease the total amount by keeping interest from accruing.

Annual percentage rate. The annual cost of credit over the life of a loan, including interest, service charges, points, loan fees, mortgage insurance and other items.

Appraisal. An evaluation to determine what a piece of property would sell for in the current market.

Assessed value. The value of a property for tax purposes, as determined by the local property appraiser's office.

Assumable mortgage. A mortgage that may be taken over by another buyer without having the loan balance come due and payable.

Balloon mortgage. A loan with a series of small monthly payments. The final balance is due in one large lump sum at the end of the term of the loan.

Buydown. A subsidy, usually paid by a builder or developer, to reduce the monthly payments on a mortgage loan.

Cap. A limit on the amount that an interest rate or a monthly payment can increase during the adjustment period or over the life of a loan. Usually used in reference to an adjustable-rate loan.

Capital gains. Gains realized from the sale of capital assets. Generally, the difference between cost and selling price, less certain deductible expenses.

Closing. A meeting to sign documents that transfer property from a seller to a buyer.

Commission. An amount paid to a real estate broker as compensation for services. Usually a percentage of the sale price or total rental.

Conditions, covenants and restrictions. The standards that define how a property may be used, and the protections a developer makes for the benefit of all owners in a subdivision.

Conventional loan. A mortgage or deed of trust not obtained under a government-insured program.

Due-on-sale. A clause in a mortgage contract requiring the buyer to pay the entire outstanding balance upon sale or transfer of property.

Equity. The market value of real estate property, less the amount of loans secured by the property outstanding.

Earnest money. A sum paid to the seller to show that a potential purchaser is serious about buying.

Escrow account. An account set up by most lenders to which the borrower makes monthly payments for such obligations as real estate taxes, homeowners insurance and special assessments. The lender disburses funds from these accounts for the borrower.

Fixed-rate mortgage. A mortgage with an interest rate that remains stable throughout the life of the loan.

Hazard insurance. Protection against damage caused by fire, windstorm or other common hazards. Many lenders require homeowners to carry it in an amount at least equal to the mortgage.

Housing finance agency. A state agency that offers below-market-rate home financing for low- and moderate-income households.

Index. Any adjustable-rate mortgage adjustments must be based on the movement of an independent index that is beyond the control of the lender and that can easily be verified by the borrower.

Lease with option to purchase. A lease under which the renter has the right to buy the property. The price and terms of the purchase must be spelled out for the option to be valid. The option may run for the length of the lease or for only a portion of the lease period.

Leverage. The use of financing to allow a small amount of cash to purchase a large investment.

Market value. The most probable price that a willing buyer would pay and a willing seller would accept, both being fully informed and the property offered for a reasonable period of time.

Mortgage broker. A broker who represents numerous lenders and helps consumers find affordable mortgages.

Mortgage company. A company that borrows money from a bank, lends it to consumers to buy homes and then sells the loans to investors.

Negative amortization. An increase in the outstanding mortgage amount when a monthly payment does not cover the monthly interest due.

Origination fee. A charge for the work involved in preparing and servicing a mortgage application (usually 1 percent of the loan amount).

Point. One percent of a mortgage amount.

Preliminary title report. A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title insurance policy is issued.

Principal. Amount of debt, not including interest. The face value of a note, mortgage, etc.

Property survey. A survey to determine the boundaries of a property. The cost depends on the complexity of the survey.

Recording fee. A charge for recording the transfer of a property; paid to a city, county or other appropriate branch of the government.

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