Add-on interest refers to an interest amount that is calculated at the start of the loan term and then added to the loan principal, resulting in equal installment payments over the entire loan period. This method typically results in a higher cost of borrowing compared to other interest calculation methods.
An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. The rate is initially fixed for a specific period, after which it resets periodically, typically annually, based on an index that reflects the cost to the lender of borrowing on the credit markets.
An Adjustable-Rate Mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. The rate initially remains fixed for a period before adjusting at preset intervals.
An adjustment index is the published interest rate used to calculate the interest rate of an Adjustable-Rate Mortgage (ARM) at the time of origination or adjustment.
The American Council of Life Insurers (ACLI) is a trade association representing life insurance companies in the United States. It provides historical data on interest rates, loan terms for commercial property mortgages, and advocates for legislative and regulatory actions favorable to the life insurance industry.
The 'Amount of One', also known as the 'Compound Amount of One', refers to the future value of a single unit of currency invested today at a specific interest rate over a given period.
The Annual Percentage Rate (APR) represents the yearly cost of borrowing, expressed as a percentage. It includes both the interest rate and any additional fees or costs associated with the loan. APR provides a comprehensive measure to compare different loan products.
A balloon mortgage is a type of loan that does not fully amortize over its term, leaving a balance due at the end of the period in a balloon payment. This large, lump-sum payment can be a surprise for borrowers who are not prepared or aware of this structure.
A basis point (bps) represents one hundredth of one percent or 0.01%, and it is commonly used in the financial and real estate sectors to denote changes in interest rates and other percentages.
Buy-Up refers to the payment of points, or a rebate, to the borrower for taking a loan with an above-market interest rate. Commonly referred to as 'negative points,' this payment helps offset fees and other settlement costs associated with the loan.
A Cash-Out Refinance allows homeowners to replace their existing mortgage with a new, larger loan, providing them with the difference in cash.
A Certificate of Deposit (CD) is a financial product commonly offered by banks and credit unions that provides an interest rate premium in exchange for the customer's commitment to leave a lump-sum deposit untouched for a predetermined period.
A 'Closed Period' is a term in a mortgage agreement that prevents the borrower from prepaying the mortgage before the agreed-upon time period. This is commonly seen in commercial real estate mortgages but rarely in residential mortgages.
The Cost of Funds Index (COFI) is a commonly used benchmark for adjusting interest rates on adjustable-rate mortgages (ARMs) in the United States. It reflects the average cost of funds deriving from savings institutions in Western 11th Federal Reserve District, including California, Arizona, and Nevada.
A commitment fee is a charge required by a lender to lock in specific terms on a loan at the time of application, ensuring that the terms agreed upon will be honored and the funds will be available when needed.
A Convertible ARM is an Adjustable Rate Mortgage (ARM) that gives the borrower the ability to change the payment schedule to a fixed-rate at specific points during the loan term, commonly for a nominal fee, with an interest rate determined by the original loan agreement.
The Cost of Funds Index is a published data series that reflects the average interest expense incurred by savings institutions for borrowing funds. Known for its use in determining rates for adjustable-rate mortgages, COFI is a significant benchmarking tool for lenders.
A credit score is a numerical expression that represents the creditworthiness of an individual, predicting the likelihood that the individual will default on a loan based on their credit history.
A Credit Union is a nonprofit financial institution that is federally regulated and owned by the members or people who use its services. Credit unions serve groups with a common interest, and only members may use the available services.
A deposit account is an arrangement whereby an individual or organization places cash with a financial institution for safekeeping. The institution can invest the cash and pay the depositor a specified interest while allowing the depositor to reclaim the full value of the account following agreed-upon procedures.
The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) deregulated financial institutions and thereby broadened the range of banking activities available to them. The act aimed to improve monetary policy control, enhance banking sector competition, and provide more comprehensive services to consumers.
Escalation clauses and escalation mortgages are tools commonly used in real estate to adjust costs and payments in accordance with specific metrics, such as inflation or interest rates, to accommodate changing economic conditions.
An Escalator Mortgage, commonly referred to as an Adjustable-Rate Mortgage (ARM), is a type of home loan where the interest rate fluctuates based on a specific financial index, causing periodic payment adjustments over the life of the loan.
A mathematically derived factor from compound interest functions indicating the level periodic payment required to fully pay off a $1.00 loan over a certain period.
Interest rate risk refers to the potential variability in investment returns due to changes in interest rates. This risk can profoundly impact the market value of real estate investments and mortgage-backed securities.
Interim Financing is a short-term loan used when a property owner is unable or unwilling to arrange permanent financing. It often includes a CONSTRUCTION LOAN and is typically arranged for less than three years, allowing time for financial or market conditions to improve.
Inwood Tables provide a set of annuity factors used for calculating the present value of an annuity based on various interest rates and maturity periods. These tables are instrumental in real estate and financial analysis.
LIBOR, or the London Interbank Offered Rate, is the interest rate at which major international banks lend Eurodollars to one another. It is widely used as a benchmark for adjustable-rate mortgages and other financial products.
A loan is an arrangement in which one party borrows money from another party, often through formal agreements that detail the terms of repayment.
Loan terms refer to the major requirements and conditions of a loan agreement, including aspects such as interest rates, repayment schedule, fees, and other obligations set by the lender and agreed upon by the borrower.
The locked-in interest rate is a promise from the lender to provide a specific interest rate for a mortgage or loan, valid for a predefined period, regardless of market rate fluctuations during that period.
Monetary policy refers to the actions of a central bank or other regulatory authorities that determine the size and rate of growth of the money supply, which in turn affects interest rates. It is a crucial tool for achieving economic objectives such as controlling inflation, managing employment levels, and maintaining financial market stability.
Mortgage assumption is the process by which a homebuyer takes over the seller's existing mortgage, continuing to make payments under the original terms. This can potentially offer favorable interest rates and terms compared to current market rates.
A mortgage note is a legal document that outlines the terms of a loan agreement secured by real estate property. It details the borrower's obligation to repay the lender, the loan amount, interest rate, repayment terms, and other provisions.
A contractual limit on the percentage amount of adjustment allowed in the monthly payment for an adjustable-rate mortgage at any one adjustment period, which can lead to negative amortization if the payment does not cover the interest due.
Perpetuity refers to a condition of endless or indefinite duration, commonly used in finance and real estate contexts to describe ongoing income streams or property rights.
In real estate, 'Rate' refers to the ratio of periodic income or change to the amount invested or initial amount. This metric is used in various contexts such as calculating interest on loans, investment returns, population growth, and occupancy in buildings.
The rediscount rate is the interest rate charged to commercial banks and other financial institutions for borrowing funds from the Federal Reserve's discount window. It plays a crucial role in monetary policy and financial regulation.
Refinancing replaces an old loan(s) with a new loan(s), potentially securing better terms, reduced payments, or accessing cash.
Refinancing refers to the process of replacing an existing mortgage with a new one, typically to secure better loan terms such as a lower interest rate or a different type of loan structure. Often abbreviated as 'refi,' this process involves paying off an old loan with a new loan, typically to take advantage of lower interest rates, different loan terms, or to switch from a variable-rate mortgage to a fixed-rate mortgage.
Renegotiate refers to the process of formally revising the terms of an existing contract between parties, typically to address changes in circumstances, mutual agreement, or to achieve more favorable conditions. This often involves adjustments in areas such as payment terms, interest rates, deadlines, and scope of work.
A Renegotiated-Rate Mortgage (RRM) is a unique type of mortgage loan where the interest rate is revised at predetermined intervals. It is distinctive because it does not rely on economic indices for its rate adjustments.
A Shared Appreciation Mortgage (SAM) is a type of mortgage where the lender offers a reduced interest rate in exchange for a share of any increase in the value of the property.
A Shared Appreciation Mortgage (SAM) is a type of residential loan that combines a lower-than-market fixed interest rate with the lender's entitlement to a specified share of the property's appreciation in value over a certain period.
A Standby Fee is a sum required by a lender to provide a Standby Commitment. The fee is forfeited if the loan is not closed within a specified time.
A subprime loan is a type of loan offered to individuals with less-than-perfect credit ratings. These loans typically carry higher interest rates and stricter lending terms as compared to standard mortgage loans.
A teaser rate is an initial lower interest rate offered on an adjustable-rate mortgage to entice borrowers, which eventually adjusts to the fully indexed rate.
A term loan is a loan with a set maturity date, typically borrowed with little to no amortization of the principal balance, requiring a significant payment at the end of the term.
A term mortgage is a type of mortgage that matures, or comes due, after the lapse of a pre-agreed-upon period of years, typically ranging from one to ten years.
An unsecured loan is a debt not protected by any collateral or security, meaning the lender relies solely on the borrower's creditworthiness and promise to repay.
A Variable-Rate Mortgage (VRM) is a real estate loan in which the interest rate applied on the outstanding balance varies throughout the life of the loan. The rate adjustments are based on predetermined benchmarks such as the prime rate or U.S. Treasury rates.
A yield curve is a graphical representation that shows the current interest rates of similar financial obligations, often government bonds, ordered by their maturity dates. The curve primarily informs about potential future interest rates and economic behavior.
A Yield Maintenance Prepayment Penalty ensures lenders are compensated for the potential loss of interest income if a borrower pays off a loan early.
