A – adjustable rate mortgage, adjustment interval, amortization, annual percentage rate (APR)…more
ADJUSTABLE RATE MORTGAGE (ARM) – a mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that for fixed rate mortgages, but monthly payments can go up or down when the rate is adjusted. The most commonly used “indexes” are LIBOR and the 11th District COFI.
ADJUSTMENT INTERVAL – the period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustable intervals are one year, three and five years. Monthly payments may not always adjust when the interest rate does.
ANNUAL PERCENTAGE RATE (APR) – along with its now famous Regulation Z, APR was a product of the 1965 Consumer Credit Protection Act. As was often the case at that time, different types of funding sources quoted “rates” in many misleading and deceptive manners. The Federal Government stepped in and created this National body of consumer law, which protects consumers in many ways. One of its’ major changes affecting consumer lenders nationwide, the reason for the creation of an Annual Percentage Rate (APR), was to provide a benchmark for comparing different types of costs, fees, charges, interest etc. as they get blended together by one lender or another. APR includes more than only “interest.” It’s a stated rate that reflects all the financing costs of a transaction. The APR includes points, origination fees and other finance charges in addition to the interest on the loan, and includes them all in a yearly “percentage rate”. As a result, the APR is usually higher than the “interest” rate alone. It’s technically the “yield” or “return on investment expressed as a percentage” received by the lender. This area of disclosure does not apply to “commercial” transactions.
APPRAISAL – an originally typed and signed estimate of the value of a property on a specific date, made by a qualified educated licensed professional called an “appraiser” for the benefit of the Lender. No photocopy can be used, and no appraisal done for one lender, then switched to a secondary Lender, would ever be acceptable. Its’ purpose is to confirm customers assertion of value of proposed collateral, and to determine an independent valuation for lending purposes. Generally they are ordered by the loan provider – with a qualified appraiser – and paid for the customer. They are the property (owned) of the loan provider; customers are entitled to a copy for their own records at closing.
APPRAISED VALUE – an opinion of a property’s fair market value, based on what a willing buyer will sell and what a willing seller will pay for a piece of real property, in an arms-length transaction, and on an appraiser’s knowledge, experience, and analysis of the property.
APPRAISER – a person qualified by education, training, experience and license to estimate the value of real property. Most funding sources will not accept an appraisal from just any appraiser; they often have approved appraiser lists of acceptable individuals or firms with whom they have had experience. An appraisal from your brother-in-law, or the friendly Realtor down the street, will not be acceptable to most institutional lender funding sources.
ASSUMPTION FEE – the amount paid, if any, to a lender for the paperwork and processing of an assumable existing mortgage. Many lenders can refuse to let a buyer assume the sellers existing mortgage, be sure and check first!