Presented by Piedmont and Oakland Hills Real Estate Agent Matt Heafey

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with
movements in the index. ARMS are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages).

Adjustable Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one year ARM, which means that the interest rate can change once a year.

Amortization: Repayment of a loan in equal installments of principal and interest, rather than interest-only payments.

Annual Percentage Rate: The total finance charge (interest, loan fees points) expressed as a percentage of the loan amount.

Assumption of Mortgage: A buyer’s agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower
(usually the seller) from liability.

Balloon Payment: A lump sum principal payment due at the end of some mortgages or other long-terms loans.

Binder: Sometimes known as an offer to purchase or earnest money request. A binder is the
acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.

Cap: Limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

CC&R’s: Covenants, Conditions and Restrictions. A document that establishes the maximum value and loan amount for VA guaranteed mortgage.

Certificate of Reasonable Value (Covenants): A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Closing Statement: The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance and mortgage insurance.

Condominium: A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries.

Contingency: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Conversion Clause: A provision in some ARMs that enables you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for
fixed-rate mortgages. This conversion feature may cost extra.

Cooperative: A form of multiple ownership in which a corporation of business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

CRB: Certified Residential Broker. To be certified, a broker must be a member of the National Association of Realtors, have five years experience as a licensed broker and have completed five required
Residential Division courses.

Due-On-Sale Clause: An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.

Earnest Money: The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.

Escrow: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution
of funds.

Fannie Mae (FNMA) A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.

Federal National Mortgage Association (FNMA): Popularly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the FHA or guaranteed by the VA, as well as conventional home mortgages.

Fee Simple: An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation 2.

Ginnie Mae (GNMA) A U.S. government-owned corporation whose chief function is to help finance government-guaranteed home mortgages through the sale of bonds.

Graduated Payment Mortgage: A residential mortgage with monthly payments that starts at a low level and increases at a predetermined rate.

Home Inspection Report: A qualified inspector’s report on property’s overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

Home Warranty Plan: Protection against failure of Mechanical systems within the property. Usually includes an evaluation of both the structure and mechanical systems.

Index: A measure of interest rate changes used to determine changes in an ARM’s interest rate over the term of the loan.

Joint tenancy: An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent’s interest in the property.

Lien: A legal hold or claim on property as security for a specified amount on specified terms.

Loan Commitment: A written promise to make a loan for a specified amount on specified terms.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interestrate at each adjustment.

Mortgage Life Insurance: A type of term life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. IF the borrower dies while the policy is in force, the debt is
automatically covered by insurance proceeds.

Negative Amortization: Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn’t covered is added to the unpaid principal balance, which means that even after
several payments you could owe more than you did at the beginning of the loan. Negative amortization can
occur when an ARM has a payment cap that results in monthly payments that aren’t high enough to cover the

Origination Fee: A fee or charge for work involved in evaluation, preparing, and submitting a proposed mortgage loan. The fee is limited to 1 percent for FHA and VA loans.

PITI: Principal, interest, taxes, and insurance.

Planned Unit Development: A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Uses may be residential, commercial or industrial.

Point: An amount equal to 1 percent of the principal of the investment or note. The lender assesses loan discount points at closing to increase the yield on a mortgage to a position competitive with other types of

Prepayment Penalty: A fee charged to a mortgagor who pays a loan before it is due. Not allowed for FHA or VA loans.

Private Mortgage Insurance (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.

Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money, or agreement for sale.

Realtor: A real estate broker or associate active in local real estate boarded with the National Association of Realtors.

Regulation Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

Tenancy In Common: A type of joint ownership of property by two or more persons with no right of survivorship.

Title Insurance Policy: A policy that protects the purchaser, mortgagee or other party against losses.