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Economic Research & Planning
Adjustment Cap
The maximum that an adjustable-rate mortgage can increase during one adjustment period.
Adjustment Period
The interval of time between adjustment dates for an adjustable-rate mortgage.
Adjustable
Rate Mortgage
(ARM)
A mortgage that has an interest rate that changes based on predetermined intervals set by an index and loan terms.
Amortization
The reduction of the principle of an outstanding debt such as a mortgage.
Annual Percentage Rate
For credit cards, this is the rate at which interest compounds when carrying a balance. It's important to know that most credit cards compound interest daily, so your APR gets applied to your average daily balance. In the case of mortgages, APR should reflect things like mortgage insurance, origination fees, and most closing cost.
Cash-Out Refinance
A refinancing agreement whereby the new loan balance exceeds any prior first or second mortgage balances along with any leans or credits. This excess over the new loan valance is given to the borrower.
Collateral
An asset used to secure the repayment of a loan.
Contingency
Conditions in a sales contract that need to be satisfied before the sale can go through. A common example of this is buyer's financing has to be approved during a home sale.
Convertibility Clause
A provision in some adjustable rate mortgages for the borrower to convert it into a fixed rate mortgage at certain periods of time.
Draw
The obtainment of funds against an available line of credit.
Escrow Account
An account set up to ensure funds are available for contract obligations for specific expenses during specific time periods. Best example of these expenses are property taxes and homeowners insurance while paying off a mortgage.
Federal Open Market Committee (FOMC)
The governing body that is in charge of setting interest rates and credit policies within the Federal Reserve system.
Fixed Rate Mortgage
A mortgage with a fixed interest rate for the entire length of time for the loarn agreement.
Forebearance
If a borrower qualifies due to certain financial hardships, this is a reduction or suspension of payments for a period of time on a mortgage or loan. Interest can still accrue but principal payments can be postponed.
Grace Period
A time period in a loan contract or insurance policy thatgrants the contract holder a period of time where a late payment does not result in a default or policy cancellation.
Home Equity Line of Credit
(HELOC)
A line of credit secured by the equity in the borrower's home. The typical HELOC last for 30 years. This is structured by a draw period of the first 10-years followed by a 20-year repayment period.
Lien
A legal claim by a creditor on someones property to secure a debt.
Loan Commitment
A formal conditional approval of a loan application with the specific terms that the lender has agree to in order to initiate the loan.
Lump Sum Distribution
A one-time payment for a retirement account within a single tax year that can be received in cash or as a roll over into another account.
Mortgage Types
There are three main types of mortgage programs. These are Federal Housing Administration (FHA) loans, the Department of Veterans Affairs (VA) loans, and Conventional mortgage loan.
Negative Amortization
The situation where payments on a loan don't cover all of the interest owed during each payment period resulting in a rise in the total balance of the loan as unpaid interest gets added to the total balance of the outstanding debt.
Refinance
Taking out a new loan to pay off the balance of an existing loan to take advantage of lower interest rates or saving on financing costs.
Required Minimum Distribution (RMD)
An IRS rule requiring a minimum amount to be withdrawn from a tax advantaged account the year following a person turning 70 and 1/2 years of age.
Teaser Rate
An initial low interest rate for an Adjustable-Rate Mortgage that expires and adjusts to a market based rate.
Treasury Bills, Notes, and Bonds
All of these are U.S. government debt obligations. The main difference between them is the time to maturity. Treasury Bills mature in 1 year or less, Treasury Notes mature in 10 years or less, and Treasury Bonds mature any time longer than 10 years.
Unified Tax Credit
A federal tax credit for gift and asset transfers for all tax payers that decreases tax liability dollar for dollar for the lifetime of an individual. This defines the dollar value that someone can transfer to others before gift and estate taxes apply.