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Glossary

Get easy to understand definitions for common mortgage terms from the Mortgage Insider. In our glossary, we define the word, tell you about in industry usage, and usually give an example so you can fully and easily understand not just the meaning but the function of the word.

Add On

Add On Defined

An add on is a cost to the borrower for risk-based conditions on their mortgage like cash out, investment, FICO scores, minimal down payment or equity, and waiving escrows. The add on is charged as a percentage of the loan amount as a discount point, at the time of rate lock, if you are made aware of it…which is unlikely.

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Adjustable Rate Mortgage - ARM

Adjustable Rate Mortgage - ARM - Defined

A mortgage that carries provisions to change the interest rate periodically. Remember if the rate can ever change..even once..it’s an adjustable rate mortgage.

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Adjustment Period

Adjustment Period Defined

On an adjustable rate mortgage (ARM), the adjustment period is the time allotted between interest rate recalculation.

The most common adjustment period for convention ARMs is 1 year. So the adjustment period is 12 months meaning every 12 months the rate changes thereby changing the payment as well. The borrower will make those new payments based on the new rate for 12 months when it then repeat the process.

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Amortization

Amortization Defined

Amortization is the repayment of a mortgage with scheduled payments that include principal and interest. At the end of the scheduled term when all the payments have been made, the mortgage is paid back in full including the interest.

The opposite of an amortized mortgage is an interest only mortgage. That payment only includes the interest due while the amortized mortgage payment includes the interest due plus your principal payment.

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Amortization Schedule

Amortization Schedule Defined

An amortization schedule is a breakdown of all the mortgage payments needed until the mortgage is paid in full. Your mortgage payment includes 2 parts, the principal and the interest. An amortization schedule shows you how much is going toward the principal and how much is going toward the interest for each monthly payment.

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Annual Percentage Rate

Annual Percentage Rate Defined

Annual Percentage Rate or APR is a rate of interest that includes certain costs and fees for the mortgage in addition to the interest rate expressed as a yearly rate. The APR rate is not the rate your payment is calculated from.

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Appraisal

Appraisal Defined

An appraisal is an estimate of the current market value of a home. The appraisal has to be included in the loan package submitted to the underwriter whether the loan applied for is a purchase or a refinance.

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