HOMEBUYER EDUCATION GLOSSARY
Actual Cash Value: An amount equal to the
replacement value of damaged property minus depreciation.
Adjustable-Rate Mortgage (ARM): Also known
as a variable-rate loan, usually offers a lower initial rate than fixed-rate
loans. The interest rate can change at specified time periods based
on changes in an interest rate index that reflects current finance market
conditions, such as the LIBOR index or the Treasury index. The ARM promissory
note states maximum and minimum rates. When the interest rate on an
ARM increases, the monthly payments will increase and when the interest
rate on an ARM decreases, the monthly payments will be lower.
Adjustment Period: The time between interest
rate adjustment dates for an ARM. They are usually the initial period
between the time the ARM is originated and the first interest rate change
date, and subsequent adjustment periods between each interest rate change
after the first interest rate change.
Amortization: A term used to describe the
process of paying off a loan over a predetermined period of time at
a specific interest rate. The amortization of a loan includes payment
of interest and a portion of the outstanding principal balance during
each payment cycle.
Amortization Schedule: Provided by mortgage
lenders, the schedule shows how over the term of your mortgage the principal
portion of the mortgage payment increases and the interest portion of
the mortgage payment decreases.
Annual Percentage Rate (APR): The cost
of credit expressed as a yearly rate. The APR includes the interest
rate, points, broker fees and certain other credit charges that the
borrower is required to pay.
Application Fee: The fee that a mortgage
lender charges to apply for a mortgage to cover processing costs.
Appraisal: A professional analysis, including
references to sales of comparable properties, used to estimate the value
of the property.
Appraiser: A professional who conducts
an analysis of the property, including references to sales of comparable
properties in order to develop an estimate of the value of the property.
The appraiser's report is called an "appraisal."
Appreciation: An increase in the market
value of a home due to changing market conditions and/or home improvements.
Arbitration: A process where disputes
are settled by referring them to an impartial third party (arbitrator)
chosen by the disputing parties who agree in advance to abide by the
decision of the arbitrator. There is a hearing where both parties have
an opportunity to be heard, after which the arbitrator issues the decision.
Asbestos: A toxic material that was once
used to make insulation and fireproofing material in houses. Because
some forms of asbestos have been linked to certain lung diseases, it
is no longer used in new homes. However, some older homes may still
have asbestos in these materials.
Assets: Everything of value an individual
Assumption: A homebuyer's agreement to
take on the primary liability for paying an existing mortgage from a