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ADJUSTABLE RATE MORTGAGE A general term for any mortgage in which the interest rate and, generally, the payments change over the life of the loan. The interest rate is adjusted to match the rise or fall of a preselected interest rate the borrower's regular payments will increase or decrease accordingly. Different types of adjustable-rate mortgages (ARMs) have different frequencies for these adjustments. Some ARMs have limits on payment and interest rate changes and the maximum interest rate over the life of the loan. To the borrower's advantage, the initial rate of an ARM is usually low, permitting the purchase of real estate that otherwise would be unaffordable with a fixed-rate mortgage. But, there is a risk of higher payments later on.

AMORTIZATION PERIOD That period of time over which a calculated mortgage payment will fully repay a set loan amount at a set interest rate.

ACCELERATION CLAUSE A common provision of a mortgage or note providing the holder with the right to demand that the entire outstanding balance be immediately due and payable in the event of default.

ACCRUED INTEREST The interest that has accumulated over the time elapsed since the borrower's last payment.

ADJUSTABLE INTERVAL When an adjustable-rate mortgage (ARM) is negotiated, provision is made for the intervals of the interest rate adjustment. This allows the lender to adjust the interest rate charged and the payments required from the borrower at prescheduled times.

AMORTIZATION PERIOD That period of time over which a calculated mortgage payment will fully repay a set loan amount at a set interest rate.

ANNUAL PERCENTAGE RATE The actual interest rate the borrower pays when all the cost of obtaining credit are included.

APPRAISAL A report made by a qualified appraiser setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained.

APPRAISED VALUE An estimation of property value made by a qualified expert.

APR See Annual Percentage Rate

ARM See Adjustable-Rate Mortgage

ASSESSMENT Tax on real property either by an annual property tax based on current fair market value or via special assessments for sewers, public improvements, etc.

ASSUMPTION A means by which the title/mortgage may be transferred to another party with or without release of liability on the note.

BALLOON MORTGAGE A mortgage with a periodic installments of principal and interest that, at the end of such a period, do not fully amortize the loan. The balance of the mortgage due is usually paid in a lump sum at a specific date, usually at the end of such periodic installments.

BASIS POINT 1/100 of 1% (0.01%)

BUYDOWN A sum of money paid to the lender at closing to reduce the borrower's out-of-pocket monthly payment. A buydown can be temporary or permanent.

CAP A limit placed on payments, interest rates and/or the balance of a loan. Caps can limit increases by either a dollar amount or a percentage.

CLOSING SETTLEMENT A statement of the funds received and spent at the closing of a real estate sale. The closing statement is furnished by the real estate closing agent to the buyer and seller separately. The standardized federal form, HUD-1, is used in most residential transactions.