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Glossary

Fixed Rate Mortgages
The most common type of mortgage program where your monthly payments for interest and principal never change.

Adjustable Rate Mortgages (ARM)
These loans begin with an interest rate that is lower than a comparable fixed rate mortgage, but the rate changes at specified intervals.

Reverse Mortgages
A Special type of loan made to older homeowners to enable them to convert the equity in their home to cash to finance other needs.

London Inter Bank Offered Rate (LIBOR)
LIBOR is the rate on dollar-denominated deposits, also know as Eurodollars, traded between banks in London.

Balloon Mortgages
Short term mortgages that have some features of a fixed rate mortgage.

Interest Rate Buydowns
The buyer would pay points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term.

Cost of Funds Index 
The ratio of the dollar amount paid in interest during the month to the average dollar amount of the funds for that month constitutes the weighted average cost of funds ratio for that month.

Graduated Payment Mortgage 
With a GPM the payments are usually fixed for one year at a time.

Amortization
A gradual paying off of a debt by periodic installments which pay principal and interest.

Negative Amortization
An increase in principal balance which occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance.

(APR) Annual Percentage rate
The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution : the APR is sometimes computed differently by different lenders and can be misleading

(LTV) Loan to Value Ratio
The loan amount divided by the value of the property.

Appraisal
An opinion or estimate of the value of a property at a given date

 



 
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