Glossary of Terms


Adjustable Rate Mortgage (ARM)
A mortgage product whose interest rate changes during the term of the mortgage as defined in the mortgage note. The rate will remain fixed for the initial period of the loan and then may adjust at specified intervals of time. For example, a 3/1 ARM is fixed for 3 years and then may adjust every year after for the term of the loan.
Amortization
The systematic repayment of a mortgage loan by equal monthly installments of principal and interest.
Amortization Term
The period of time (normally expressed in years or months) used to determine the monthly payment amount required to pay back a mortgage loan in equal monthly payments. (Typically used with Balloon and ARM Mortgages)
APY
Annual Percentage Yield. Expresses an annual rate of interest taking into account the effect of compounding. It is always greater than or equal to the Annual Percentage Rate.
Cap
A provision on an ARM loan that limits how much the interest rate can increase or decrease. The cap is typically stated as a percentage amount. There are both annual (per change) caps and lifetime caps. Most annual caps are either 1% or 2%. Lifetime caps can be either a percentage change from the original interest rate (such as 6%) or can be a maximum percentage the interest rate can climb to (such as 12.5%).
Conforming Mortgage Loan
A residential mortgage loan that meets all FNMA (Federal National Mortgage Association – Fannie Mae) and/or all FHLMC (Federal Home Loan Mortgage Corporation – Freddie Mac) standards. A Conforming loan has a dollar amount equal to or less than $417,000.
Conventional Mortgage Loan
A mortgage loan based solely on the value of the real estate and the credit worthiness of the borrower. This is a mortgage loan without any government insurance or guarantees. This is the type of mortgage loan that anyone can qualify for.
Convertible ARM Loan
An ARM loan that has the option of converting to a fixed rate loan. This convertible option is written into the ARM note and is typically only available during the first five years of the loan.
Discount Point
A percentage that the borrower pays at closing in order to get a lower interest rate, sometimes simply called a point. (usually between 0% - 3% or 0 to 3 points.)
Down Payment
The amount of the total purchase price paid up front in cash.
Fixed Rate Mortgage
A mortgage product whose interest rate does NOT change during the term of the mortgage. This is the most common type of mortgage product.
Home Equity Line of Credit (HELOC)
This is a line of credit taken out by the borrower using the equity in their home as collateral. The borrower writes checks up to the limit that is on the line. If the borrower fails to repay the loan, the institution has access to the home for repayment of the debt.
Home Equity Loan (HEL)
A loan, received in one lump sum, taken out by the borrower using the equity in their home as collateral. If the borrower fails to repay the loan, the institution has access to the home for repayment of the debt.
In-House Mortgage
Also called a portfolio mortgage. A mortgage that will be kept in the originating institution’s investment portfolio. It may not be sold on the Secondary Market but an institution can choose to do so after the loan is processed.
Introductory Rate
A special rate offered by the financial institution that is applied during a portion of the loan term and set significantly lower to lure consumers to take out loans.
IRA
Individual Retirement Account. A tax-deferred savings account meant for a depositor's retirement. Deposits are made throughout the life of the IRA and can be withdrawn when the depositor reaches the age of 59 1/2 (or earlier, with a 10% penalty).
Laddered CD Specials
A Laddered CD is a combination of several CDs offered together with each CD having different maturity dates. An example of a laddered CD is to have maturity dates of one, two, three, four and five-year CDs. The idea is to invest a large amount of money at once, but still have periodic access to part of your money without paying a penalty for early withdrawal.
Loan to Value Ratio
The relationship between the amount of the loan and the appraised value (or sales price, if it is lower) of the property. (A ratio of the amount of the loan over the value of the property) This ratio is really the maximum percentage an institution will loan based on the fair market value of the property. The difference between this value and 100% is the down payment required by the institution.
Maturity
Refers to the length of time that a CD must be held to avoid penalty for early withdrawal.
Minimum Deposit
The minimum amount you must invest in order to meet the terms of the product.
Non-Conforming Mortgage Loan
A residential mortgage loan that does NOT meet all FNMA (Federal National Mortgage Association – Fannie Mae) and/or all FHLMC (Federal Home Loan Mortgage Corporation – Freddie Mac) standards. A Non-conforming loan has a dollar amount of more than $417,000. This can also be referred to a 'Jumbo' loan.
Non-Convertible ARM Loan
An ARM loan that does NOT have the option of converting to a fixed rate loan.
Origination Fee
Fees required by the financial institution that covers the costs of originating a loan. (It is often expressed in points - 1 point = 1 percent of the loan amount.)
Percent Financed
The maximum percentage of the purchase price a financial institution will finance for a loan.
Personal Unsecured Loan
(May also be called Signature Loan or Consumer Loan Unsecured.) This is a loan taken out for personal use without using anything as collateral.
PMI (Private Mortgage Insurance)
PMI is insurance underwritten by a private company to protect the lender against repayment default. Private mortgage insurance is sometimes required on a conventional mortgage loan. This requirement is typically associated with the amount of down payment the borrower makes. Most institutions require a 20% down payment on a conventional loan. If less than 20% down payment is made, PMI may be required.
Secondary Market Rate
The rate used when the originating institution plans to sell the mortgage loan to an investor on the Secondary Market. (Such as Fannie Mae, Freddie Mac, etc.) These rates may be the same or slightly higher or lower than the in-house rates on those loans the institution keeps in their own investment portfolio.
Specials
CDs that are offered by a financial institution at a special rate. Specials often have restrictions or requirements attached to them. Check with the financial institution for further terms and conditions. Some examples include:
+Age (Plus Age)
These are referred to as Birthday Specials. A base rate is set on the special. Depending on your age, they will add to the base rates. E.g. Base rate is set at 4.00%. If your age is 33 then your rate will be 4.33%.
Add-To CD
A CD that allows additional deposits during the term of the CD.
BMP or Bump (Bump-Up CD)
A CD where the consumer must monitor the rates and has the option to request the rate to be bumped to the higher rate if the rate increases. This CD may come with multiple bump options.
Callable
A special the institution can terminate after a specific amount of time. E.g. A bank is running a 4 year Callable CD. After 2 years they can call it back. You will have to withdraw all of your money or roll it over to another CD. (Note Do not confuse this with Callable CDs that are sold by investment brokers.)
Child
A special that is only offered to children usually under the age of 18.
New Money CD
A CD where the initial deposit must be new money coming to the institution.
No Penalty CD
A CD where full or partial withdrawals are allowed and no penalty will be imposed during the term of the CD.
Relationship
The financial institution requires an investor to have another account to obtain that special.
Rising RT CD (Rising Rate CD)
The rate automatically go up in predetermined time intervals to predetermined rates.
Sports CD
A CD that offers increases to the interest rate based on the scores of a sports team.
Step Up CD
A CD where the institution will automatically step up the rate if the rate increases. This type of special may come with multiple step up options.
Variable
A rate that could change during the term of the special. Usually based on some sort of index.
Web CD
A CD promotion available only through the Financial Institution's web site.
WKS (Weeks)
Refers to a CD that offers a high rate for a period of time less than the CD's maturity. The number preceeding WKS refers to the number of weeks that the high rate is in effect. Thereafter, the rate on the CD will be a smaller percentage.

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