adjustmentt: a change in the interest rate of an adjustable or variable rate mortgage

• adjustment cap: a limit on how much the rate can be adjusted at once
• adjustment ceiling: a limit on how much the rate can EVER rise
• adjustment frequency: how long between adjustments
• adjustment index: a guide to help borrowers see what to expect from the next adjustment

amortization: gradual repayment of the principal over time (typically with a flat payment but varying amounts of principal and interest)

• amortization schedule: a table showing how much of the borrower’s payment will go to both principle and interest over the life of the loan
• amortization calculator: a tool or formula to determine the amortization schedule
• partial amortization: a loan type that includes both regular (monthly) payments and a lump sum at the end (a “balloon payment”)

APR (Annual Percentage Rate): interest rate by year (usually for a loan that is paid per month)

• nominal APR: simple interest rate per year
• effective APR: full cost of borrowing included (fees, charges, etc., may be added to the balance in total or considered a short-term loan to be paid in the first monthly payment, with the balance of the loan beginning afterward)

appraisal: a process of surveying property to determine its value

balloon payment: the amount of principal still due once the final scheduled payment has been made

borrower: the person getting (“taking out”) the loan

conforming (or ‘standard’) loan: usually higher requirements, the loan is more easily sold, the borrower is a lower risk

credit rating: a potential borrower’s amount of risk to the lender or broker

• credit score: a simplified summary of the borrower’s debt history, usually expressed in a three-digit number
• credit report: a more detailed list of the borrower’s credit and debt history items and current status

FHA (Federal Housing Administration): FHA insured loans are designed to assist lower-income borrowers

debt-to-income ratio (DTI): percentage of gross income to be spent on mortgage payment (front-end ratio) or to all recurring debt payments (back-end ratio)
default: when a borrower fails to maintain an agreed-upon repayment schedule (or another contract clause)
deferred interest: interest to be paid at a later date (i.e., added to the principal, rather than paid right now). See negative amortization.
equity: value of the property minus the amount still owed

• negative equity: the value has dropped below the remaining amount of the loan

Fannie Mae: Federal National Mortgage Corporation; a GSE that buys mortgages from lenders

foreclosure: repossession of the property by the lender (or any owner of the loan)

Freddie Mac: Federal Home Loan Mortgage Corporation; a GSE that buys mortgages from lenders – created so that Fannie Mae wouldn’t be a monopoly?

Ginnie Mae: Government National Mortgage Association (Dept. of Housing & Urban Development or HUD), can issue government-guaranteed MBS

GSE (Government-Sponsored Enterprise): privately-held financial services corporation backed or sponsored by the government (Fannie Mae, Freddie Mac, etc.)

index: a reference, in this case typically an index for determining interest rates (e.g., ‘prime’ or LIBOR)

interest: the lender’s ‘charge’ to the borrower, expressed as a percentage of the principal

interest-only mortgage: you are required to pay only the interest on the loan; all payments to the principal are at the borrower’s discretion

investment-backed mortgage: an interest-only mortgage plus a separate investment plan designed to provide the principal payment(s)

lender: the bank (or other financial institution) which loans the money

LIBOR: London InterBank Offered Rate, sometimes used as a reference rate for the least risky borrowers

loan officer: an agent of the lender (usually) that provides services to the borrower

loan servicer: a company who collects and processes loan payments but is not necessarily the lender

margin: an amount of deviation from a specific standard, often used to express an interest rate (e.g. “4% over prime”)

mortgage: a loan on real estate (property)

mortgage broker: a third party that finds a lender (and often provides additional services)

mortage-backed security (MBS): a loan using mortgage-generated cash flow as a guarantee or collateral