An AML Adjustable Mortgage Loan is a type of mortgage that allows the interest rate to adjust periodically based on changes in a corresponding financial index that's associated with the loan. This type of mortgage is often chosen for its initial lower interest rates.
The Annual Mortgage Constant is a ratio that quantifies the total annual mortgage payments, including both principal and interest, compared to the initial loan principal. It is used by lenders and borrowers to determine the yearly cost of a mortgage and assess its affordability.
The Annual Percentage Rate (APR) is the effective annual rate of interest for a loan, taking into account fees and other associated costs, disclosed as required by the Truth-in-Lending Act.
An annuity factor is a mathematical figure that shows the present value of an income stream that generates one dollar of income each period for a specified number of periods.
Below-Market Interest Rate (BMIR) is a government-driven program where property owners are charged a reduced interest rate with the stipulation that the savings from the reduced rate are passed on to tenants through lower rents.
A blended rate is an interest rate applied to a refinanced loan that is higher than the rate on the old loan but lower than the rate offered on new loans. It is generally offered by the lender to induce homebuyers to refinance existing low-interest rate loans as an alternative to assuming the existing loan.
A Certificate of Deposit (CD) is a type of savings account that carries a specified minimum deposit and term, typically offering a higher yield compared to regular savings accounts.
Discount points are fees paid directly to the lender at the time of the loan origination to reduce the interest rate and lower monthly mortgage payments. Frequently used in conventional, FHA, and VA loans, they offer borrowers flexibility in managing loan costs.
A fixed-rate mortgage, or FRM, is a loan secured by real property featuring an interest rate that remains constant for the term of the loan. It contrasts with an adjustable-rate mortgage (ARM) in that the interest rate does not fluctuate based on market conditions or an index.
A floating rate is an interest rate on a loan, bond, or other fixed-income security that fluctuates over time according to a specific benchmark or index. This rate is not fixed and can change throughout the term of the financial instrument.
In real estate, a 'Floor' is a provision in the contract of an adjustable-rate mortgage (ARM) that sets a minimum interest rate for the loan, ensuring it does not fall below a specified level regardless of market conditions.
The fully indexed rate in the context of adjustable-rate mortgages (ARMs) refers to the interest rate determined by the sum of the current value of an index and a margin applied to the loan. This rate dictates the monthly mortgage payments after initial rate periods and caps are considered.
A Hybrid Mortgage combines features of both a fixed-rate mortgage and an adjustable-rate mortgage, typically starting with a fixed interest rate for an initial period followed by an adjustable rate for the remaining period.
An interest rate is the percentage of a loan amount charged by the lender to the borrower for the use of the borrowed funds. It can also represent the rate of return on an investment. Understanding interest rates is crucial for real estate transactions as they significantly affect mortgage payments and the overall cost of borrowing.
The Inwood Annuity Factor is a number used to determine the present value of a series of equal periodic payments from a level payment income stream, considering a specific interest rate.
A Letter of Commitment serves as official notification to a borrower from a lender, indicating the latter's intent to grant a loan. This letter typically specifies the terms of the loan, including interest rate, loan term, and sets a date for closing.
In real estate and finance, a margin refers to the constant amount added to the value of the index to adjust the interest rate on an adjustable-rate mortgage (ARM). It is a critical component in determining the overall interest rate that a borrower will pay.
The mortgage constant is the percentage ratio between the annual debt service and the outstanding loan principal. It reflects both the interest and the amortization components of a loan and is used extensively in real estate to determine the annual loan payment.
Negative amortization refers to an increase in a loan's outstanding balance due to periodic debt service payments being insufficient to cover the required interest charges. This generally occurs with indexed loans where the interest rate can be adjusted without altering the monthly payment amount.
The nominal loan rate, also known as the face interest rate, is the percentage of interest charged by the lender on the loan's outstanding principal balance. It does not account for inflation or other complex variables such as fees or compounding.
A nonconforming loan is a loan that does not meet the standards of, or is too large to be purchased by, Fannie Mae (FNMA) or Freddie Mac (FHLMC).
Points are fees paid to lenders to reduce the interest rate or secure a mortgage loan. Each point is 1% of the loan principal, affecting the overall loan cost and effective interest rate.
The Present Value of Annuity (PVA) represents the current value of a series of future equal payments, discounted at a specific interest rate, over a set period.
The prime rate is the lowest commercial interest rate charged by banks on short-term loans to their most creditworthy customers. It significantly influences other rates, including those for mortgages and consumer loans.
The rate of interest, also known as the interest rate, is the proportion of a loan that is charged as interest to the borrower. It is a crucial factor in real estate financing and investment.
The reinvestment rate is the interest rate an investor is assumed to be able to earn on intermediate cash flows in the projection of a terminal value.
The risk premium is the difference between the required interest rate on an investment and the rate on risk-free investments such as U.S. Treasury securities. It compensates investors for taking on higher risk compared to risk-free assets.
The risk-free rate is the interest rate on the safest investments, typically represented by short-term government securities like U.S. Treasury bills. It is a crucial component in finance for calculating other metrics and making investment decisions.
A type of mortgage loan commonly used in Canada, where the amortization term for principal repayment extends over a long period, but the interest rate is set for a much shorter term. The interest rate is renegotiated, or the loan 'rolls over,' at the end of this shorter term based on current market conditions.
The safe rate is an interest rate offered by relatively low-risk investments such as high-grade bonds or well-secured first mortgages. It is often used as a benchmark for other rates of return to compare the risk and safety of various investment options.
A second mortgage is a subordinated lien created by a mortgage loan that enhances financing options by reducing the cash down payment requirement during a property purchase or refinancing.
The Time Value of Money (TVM) is a financial concept that asserts money available at the present time is worth more than the same amount in the future due to its earning potential.
Usury refers to the practice of charging a rate of interest on loans that is higher than what is allowed by state law, designed to protect borrowers from excessively high interest rates.
A Variable-Rate Mortgage (VRM) is a long-term mortgage loan applied to residential properties, under which the interest rate adjusts on a scheduled basis, typically every six months. Rate increases are restricted to no more than ½ point per year and a total of 2½ points over the Term. The term Adjustable-Rate Mortgage (ARM) is now more commonly used.
