Adjustable rate mortgage (ARM)

The ARM is a loan secured on property whose interest rate and monthly repayments vary over time. The variations in ARM usually correspond and depend on the flucatuations of a pre-determined index. Due to its nature, it is also known as the Variable Rate Mortgage or the Negotiable Rate Mortgage.\n\nSee further Adjustment date, Convertible ARM, Fixed rate mortgage

Adjustment date

The interest rates on Adjustable Rate Mortagage change periodically. The date on which this change occurs is called the adjustment date.

Amortization

A payment to pay off part of a debt or a loan. This payment is usually periodical. Given that the monthly payment exceed the interest payment for a period, the debt balance or remindning loan balance, is decreasing. In some cases there is a anuity payment plan, that is there is equal payments per period. In this case the amortization part of a payment is the part of the payment that is used to pay off a part of the debt. The remaining part of the payment for the period is paid for the interest accrued on the loan. A loan is amortized over a period in order to have it paid off (fully or partly) over the loan period. In you payment plan for a mortgage or loan you will find the amortization part, as well as interest part, per month (or period). In the case with fixed mortgage interest rates the amortization part is fixed and predictable. In the case with adjustable mortgage interest rates, the total payment may vary over time, as may the actual amortization in some cases depedning on type of mortgage or loan. However, typically there is a amortzation plan that let you know exactly how large your remaining debt will be at the end of each month (period). Se further Amortization Schedule and Amortization Term.

Amortization schedule

It is a comprehensive schedule of payments tabling the break up of the mortgage amount, interest amount, principle received, and balance due through each period of loan till the loan balances reaches nil.

Annual percentage rate (APR)

It is an expression of the effective rate of interest that will have to be paid on a loan. It is taken as a percentage and calculated as a yearly rate. It is usually different and higher than the advertised rate because it includes one time fees and other costs which help to determine the total cost of borrowing. It is a measure to compare different loans offered by competing lenders taking into account both interest rate and closing fees. It is essential to know the total amount of fees involved as different lenders have different set of fees included in the APR. As a rough guide to calculating the apr, first deduct the fees from the loan amount. Then calculate the interest rate on the actual loan payment amount instead of the actual loan amount. The amount will be a number close to your APR.

Application

An application is a form poularly known as Form 1003. It is needed to apply for a mortgage and provides information about the prospective borrower/mortgagor like his savings, income, assets, debts as well as the security to be offered.

Appraisal

It is an estimated value of a property, based on a analytical comparison of similar saleable property.\n\nSee further Apprasier, Assessment, Fair market value

Apprasier

A qualified professional who has had the necessary academic expertise, training and experience to give a fair estimation of the value of real and personal property.\n\nSee further Appraisal, Assessment

Appreciation

It is the rise in the value of property because of fluctuations in market conditions and other causes like inflation, costs and standard of living.

Assessment

The assigning of an approximate taxable value on a property for a specific purpose.\n\n See further Appraisal, Assessment, Appraiser

Asset

Any property or possession so owned by an individual that has monetary value is an asset. They include real estate, personal property and debts owed to the individual by others. Liquid assets are those which can be quickly converted into cash like bank accounts, stocks and shares, bonds, mutual funds etc.

Assignment

The handing over or transfer of ownership of one's mortgage be it a company or individual to another is an assignment.

Assumable mortgage

A loan that allows a home buyer to take over a seller's mortgage when purchasing a home. The borrower must qualify to assume the loan. When you assume a mortgage you inherit both the interest rate and monthly payments. It can save you money if the exsiting interest rate on the mortgage is lower than the current market rate and closing costs are avoided as well. If the loan comes with a stipulation that the mortgage has to be repaid upon the sale of property then it is not termed as assumable.

Assumption

Assumption is an agreement between the buyer and seller where a buyer assumes a seller's mortgage and takes over the payments on the exisiting mortgage. This is a big saving for a buyer as it does not entail the clsoing costs and high interest rates of a new mortgage. It is not very popular anymore and the Buyer should be wary.

A- credit

The best credit rating that you can have. A FICO score above 720 will get you the best offer the lender can offer and the best interest rates. When applying for a mortgage loan, you will want your credit score to be as high as you can make it. Start working on this immediately.

Abandonment

Abandonment happens when the person with a right or interest in a property gives up their interest. Once property has been "abandoned," it is no longer the property of the estate. This can happen either by physically abandoning the property or by demonstrating the intention of giving up the right or interest.

Ability to Pay

A principle of taxation. Individuals who earn more money will pay more income tax not because they utilize more of the government services but because they have the ability to pay more.

Abstract of title

A summary listing of all the transactions that pertain to the title on a specific piece of land. An abstract of title covers the time from when the property was first sold to the present. This information can be used to create a title binder.

ACRES (accelerated cost recovery system)

Commonly referred to as ACRS (pronounced "acres"), a method of depreciating property rapidly for tax purposes. ACRS property is divided into classes and each class has a predetermined time period over which it may be depreciated. ACRS generally is used for property placed in service after 1980 and by Dec. 31, 1986. The modified system that has replaced ACRES is known as MACRS, or Modified Accelerated Cost Recovery System.

Accelerated depreciation

A bookkeeping method primarily for tax purposes that shows how the property is losing value. Depreciation is the reduction of the properties value over passing time. If the property is losing its value quickly, the value can be accelerated so that the majority of its value is lost in the first few years but slows down over the later years in ownership.

Acceleration

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due on Sale Clause.

Acceleration Clause

A mortgage acceleration clause is a common provision of a mortgage or note providing the holder with the right to demand that the full outstanding balance is immediately due in the event of default. This is a legal right that is bestowed on the mortgage or loan if the borrower fails to live up to his or her obligations.

Accrued Interest

Accrued interest is unpaid interest that accumulates on the principal balance of a loan, adding to the total amount owed in a loan.

Acceptance

A positive response to an offer or counter-offer that enables the agreement between the parties.

Acquisition fee

A charge in most auto leasing companies for originating the loan, just as mortgage lenders charge points as an origination fee. This could be called a bank fee or an administrative fee and can be paid up front or it is included or ‘rolled into' the gross cost. This fee covers items like obtaining a credit report, entering the lease in the data system, and general administrative task involved with assessing the loan.

Acquisition indebtedness

A loan you get to build your house, a loan to buy your house or any loan you take out to facilitate major home improvements. The interest that you pay on such a loan is, in most cases, tax-deductible.

Ad valorem tax

A tax based according to item value only, usually property tax based on the just or fair market value of the property. This tax can also be imposed on as a duty on imported items. Property ad valorem taxes are a major source of revenue for state and municipal governments.

Additional principal payment

An additional principal payment made towards the principal balance of a loan. This can enable the borrower's future interest payments to be reduced. In amortized loans, such as most mortgages and auto loans, most of the early payments go toward principal. If you can make at least one extra payment a year, you can cut the length of a loan by as much as a quarter.

Add-on Interest

Interest that is computed at the beginning of the loan, then added to the principal, so that all must be repaid, even if the loan is paid off early. The result of this is interest charges that can be double that of the stated simple interest rate.

Adjusted Basis

The cost of a property plus the value for improvements to the property minus any depreciation taken.

Adjustment Interval

The adjustment period or interval is the time between changes in the monthly payment or the interest rate on an adjustable rate mortgage (ARM).Most mortgages come with an adjustment period of 1, 3, 5, or 7 years. This means your interest rate is fixed for that amount of time. After that, the interest rate can adjust up or down, depending on the market.

Affordability

An estimate as to how much a person can afford in order to purchase a home. Affordability gives the consumer a possible price that they could be approved for and also gives the amount they will be required to pay for their mortgage payment.

Aggregate Adjustment

An aggregate adjustment determines the amount of money placed in a borrower's escrow account at closing. An aggregate adjustment works to ensure that the borrower's escrow account maintains the necessary balance throughout the year; particularly when taxes and insurance are paid.

Amenity

a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; something that contributes to the physical or material comfort. Having amenities will increase the value and attractiveness of a piece of property, or a location.

Appraisal Fee

The fee charged by a certified appraiser to render an opinion of market value of property. This fee is paid to an outside appraisal company to objectively determine the fair market value of your property. This fee can vary depending on the item being appraised and the geographical location.

Arbitration

A nonjudicial attempt to resolve a controversy using a neutral third party. By making arbitration a condition of the loan contract, many lenders impose arbitration on consumers.

Automated Valuation Model (AVM)

This provides computer generated home appraisals for mortgages. AVM mortgage appraisals are designed to replace the work completed by licensed real estate appraisers. Most lenders use AVM mortgage appraisals to speed up the process and reduce costs. There is controversy debating whether this is a good implementation for evaluating property and its accuracy when compared to using an appraisal management company or AMC.

Abandonment value

Abandonment value is the amount which could be recovered from an asset or project if it were liquidated or terminated immediately. Investors would compare an asset's abandonment value to that asset's projected earnings to decide whether or not to continue supporting that asset.

Abatement

Abatement is a decrease or reduction. In business, the term usually refers to a decrease in a payment obligation, such as tax or debt. Rent abatement is a court-ordered reduction in rents payable due to uninhabitable living conditions.

Above-the-line deduction

Above-the-line deductions are tax items that are subtracted from, or added to, gross income in the calculation of adjusted gross income (AGI).

Abstract of judgment

An abstract of judgment is a court document describing a court-ordered, monetary award. The document can be filed with the county recorder's office to establish a lien against property owned by the defendant.

Academy of Financial Divorce Practitioners

The Academy of Financial Divorce Practitioners educates and certifies financial service professionals in the financial consequences of property settlements, child support, and other divorce-related issues. Certified members are awarded the CFDP (Certified Financial Divorce Practitioner) designation.

Accelerated cost recovery system

Accelerated cost recovery system, also known as ACRS, is a depreciation method that was introduced and defined in the Economic Recovery Tax Act of 1981. ACRS allows for rapid depreciation (for tax purposes) of property placed into service between 1981 and 1986.

Accelerated payments

Accelerated payments are amounts applied to a loan over and above the required repayments. These additional, unscheduled payments lower the balance of debt outstanding, and can lead to interest savings and early pay-off.

Accelerated use

Accelerated use is a program associated with timeshare ownership. It allows an owner/member who has purchased one week annually, for example, to use more than one week in some years, and less than one week in other years. A 10-year ownership program with accelerated use might allow an owner/member to take two five-week vacations rather than 10, one-week vacations.

Acceptance letter

An acceptance letter is written correspondence from a college or university notifying a prospective student that he or she has been approved for admission to the college or university.

Accident and health benefits

Accident and health benefits are provided by employers to compensate employees for expenses related to illness and accidental injury or death. Employers usually receive a deduction for providing this type of compensation to employees.

Accident and health insurance

Accident and health insurance provides coverage for accidental injury, illness, or death. Benefits include payment of medical expenses and payment of income. Some programs also allow for debt payments while the insured is unable to earn income.

Accommodation paper

An accommodation paper is a document executed by one party for the benefit of another. In practice, an accommodation paper is used as a loan guarantee, in which a third party agrees to repay the loan if the borrower does not.

Accommodative monetary policy

An accommodative monetary policy is a strategy implemented by a central bank (e.g., the Federal Reserve) to encourage economic growth. Generally, an accommodative monetary policy involves the lowering of interest rates so that money is less expensive for consumers and businesses to borrow.

Account

An account is a list of financial transactions. The term can refer to a deposit of money used for the purposes of checking, saving or investing, or it can mean a credit arrangement for the use of buying goods and services.

Account balance

Account balance is the net value of all deposits and withdrawals within a financial account as of a certain date. The balance represents the amount of money in the account.

Accountant

An accountant is a professional who manages and audits financial records and prepares financial statements and tax documentation for individuals and businesses. Accountants must understand and comply with financial reporting regulations.

Accounting method

Accounting method refers to the system of bookkeeping used by an individual or business. The two methods are accrual accounting and cash accounting. Cash accounting is the simpler of the two and the preferred choice for many small businesses.

Accounting period

An accounting period is an interval of time covered by a set of financial statements. With respect to tax accounting, the accounting period refers to the 12 months of activity reported in the calculation of income taxes.

Accounts payable

Accounts payable, or AP, represent money owed by a company or household for goods and services already received. These are short-term debt obligations. Businesses list AP as current liabilities on the balance sheet.

Accounts receivable

Accounts receivable, or AR, represent money owed to a company or household in the short-term for goods and services already provided. Businesses list AR as current assets on the balance sheet.

Accrual method

The accrual method is a system of bookkeeping that matches related revenues and expenses and records them when the transaction occurs, rather than when cash changes hands. For example, a sale made on credit would be recorded to income immediately, even though the company has not received cash payment for the sale. Certain related expenses, such as the cost of goods, would also be recorded, even if those were paid for in a prior period. The accrual method is also called accrual accounting or accrual basis accounting. Large businesses commonly use this method.

Accrued market discount

Accrued market discount is the rise in the market value of a discounted bond that occurs as its maturity date approaches. For example, a bond with a face value of $100 might be purchased for the discounted price of $50. Over time, the market value of this bond will gradually rise from $50, reaching $100 at the maturity date, when it's redeemable for the full face value. This increase in market value is not related to a change in market interest rates.

Accumulation

Accumulation refers to the investment practice of buying securities over time, while reinvesting dividends and related income, with the objective of building a sizeable portfolio. With reference to corporations, accumulation can mean the reinvestment of earnings to fund business growth.

Accumulation period

Accumulation period is the timeframe during which an individual contributes regularly to a retirement plan that will provide income payments at some future date. The term is typically used in reference to deferred annuities.

Accumulation phase

Accumulation phase is the timeframe during which an individual contributes regularly to a retirement plan that will provide income payments at some future date. The term is typically used in reference to deferred annuities.

Accumulation plan

An accumulation plan is the investment practice of buying securities over time while reinvesting dividends and related income, with the objective of building a sizeable portfolio. The term is generally used in reference to retirement investing.

Accumulation unit

An accumulation unit measures the value of contributions made to a variable annuity account and documents a contributor's share of participation in that account. The term is also used to measure shares of funds within a unit trust; those shares, or units, can either be reinvested or issued to the investors in the trust.

Acquiring financial institution

An acquiring financial institution is contracted by a merchant to facilitate the merchant's acceptance of credit card payments. The acquiring financial institution acts as the go-between in the transaction, collecting funds from the card company and depositing funds in the merchant's account.

Acre

An acre is a unit of measurement for land that is equal to 43,560 square feet.

Acre foot

An acre foot is a unit of volume used to measure large bodies of water. An acre foot is equal to 43,560 cubic feet, or roughly 325,851 gallons. This volume of water will cover one acre of land at a depth of one foot.

ACRS

ACRS is the abbreviation for accelerated cost recovery system, a depreciation method that was introduced and defined in the Economic Recovery Tax Act of 1981. ACRS allows for rapid depreciation (for tax purposes) of property placed into service between 1981 and 1986.

Active income

Active income is money earned for services, including salaries, wages, tips, and commissions. Business profits are considered active income only where there is material participation in the business operations.

Active Investing

Active investing is the practice of constantly buying and selling securities in order to profit from temporary conditions that cause short-term pricing and value changes.

Active participation

Active participation is an IRS-defined level of involvement in the management of real estate properties that determines how the rental income from those properties is taxed. Active participation is a lesser level of involvement than material participation.

Actual age

Actual age is a real estate appraisal term refering to the number of years that have passed since a specific building improvement was made. An improvement's actual age is often compared to it's effective age.

Actual cash value

Actual cash value is the replacement cost minus depreciation of a specific item of personal property. It's essentially the value for which the item could be sold, which is often less than what it would cost to replace it. Insurance companies sometimes use actual cash value to determine what to pay a policyholder after loss or damage to insured property.

Actual Return

Actual return is an investor's real gain or loss on a portfolio.

Actuarial Risk

Actuarial risk is the danger that the computations used to generate insurance probability estimates are based on inaccurate assumptions. These probability estimates are used to price insurance policies at a level that allows the insurer to make expected payouts while continuing regular business operations. If the underlying assumptions are wrong, the insurer could face serious financial consequences.

Actuary

An actuary is a mathmetician who specializes in evaluating risk and setting premium prices for insurance companies.

Addendum

An addendum is an addition or supplement, often to a book. In the legal sense, an addendum is a clarification or change made to a contract.

Additional living expense insurance

Additional living expense insurance is coverage that provides payment to the insured for extra costs resulting from being temporarily displaced from an insured property due to damage. This coverage is typically provided as part of a homeowner's or renter's insurance policy.

Additional monthly benefit

Additional monthly benefit is an extra payment provided in the event of an injury under a disability income policy. Typically, the extra monthly amounts are provided before the injured party begins receiving Social Security benefits.

Add-On Certificate of Deposit

An add-on certificate of deposit (CD) gives the depositholder the right to roll additional funds into a time deposit, so that those additional funds will earn the same interest. Traditional CDs don't allow for additional deposits between the purchase and expiry dates.

Add-ons

Add-ons are optional features that enhance a base model automobile. Examples include an anti-theft device, sunroof, upgraded audio system, and custom-look wheels.

Adjustable rate

An adjustable rate is a rate of interest paid on outstanding debt (often a mortgage) that can fluctuate. Generally, adjustable rates are defined relative to an underlying variable index, as in 30-day LIBOR plus 1.50%.

Adjustable-rate mortgage

An adjustable-rate mortgage, or ARM, is a form of financing secured by real estate which carries an interest rate that may change over the life of the loan. The interest rate on an ARM is defined as a variable financial index plus or minus a margin, such as "1-year Constant Maturity Treasury plus 2.5%."

Adjusted balance

Adjusted balance is a method used to calculate monthly finance charges, usually on a revolving credit card account. The formula uses the end-of-period account balance, after all credits have been posted, to calculate the finance charges. Other methodologies include average daily balance and previous balance method.

Adjusted balance method

The adjusted balance method is used to calculate monthly finance charges, usually on a revolving credit card account. The formula uses the end-of-period account balance, after all credits have been posted, to calculate the finance charges. Other methodologies include average daily balance and previous balance method.

Adjusted cost basis

Adjusted cost basis is the value of an asset, reflecting the amount paid for the asset plus improvements made and less depreciation.

Adjusted exercise price

Adjusted exercise price is the price at which an option can be bought or sold, taking into consideration any underlying stock splits. Specific to put and call options on Ginne Mae contracts, the exercise prices on these options are adjusted so that different pools of mortgages have the same value to investors, even when their coupon rates differ.

Adjusted funds from operations - AFFO

Adjusted funds from operations, or AFFO, is a non-GAAP measure designed to measure a real estate income trust's, or REIT's, residual cash flow. This is important because REITs use residual cash flow to pay shareholder dividends. There are many ways to calculate AFFO, but a common formula is funds from operations (FFO) less maintenance capital expenditures.

Adjusted gross income - AGI

Adjusted gross income, or AGI, determines the federal tax liability of an individual or married couple filing jointly. Income includes salaries, wages, and other earned amounts, plus investment income and business profits. Adjustments to income might include qualified retirement contributions, business expenses, etc. AGI is income less these qualified adjustments.

Adjustment bureau

An adjustment bureau is an organization that provides assistance in the management of insurance claims and financial dealings, often on behalf of bankrupt debtors.

Adjustment frequency

Adjustment frequency refers to how often the interest rate on an adjustable-rate mortgage (ARM) can be reset. Most ARMs have an adjustment frequency of one year, meaning that the rate would be adjusted once annually. Longer or shorter adjustment frequencies are also available.

Adjustment period

Adjustment period refers to how often the interest rate on an adjustable-rate mortgage (ARM) can be reset. Most ARMs have an adjustment period of one year, meaning that the rate would be adjusted once annually. Longer or shorter adjustment periods are also available.

Avigation easement

An avigation easement grants aircraft the right to fly, land, or take off in unobstructed airspace above a parcel of real property. Such an easement often prohibits the property owner from installing structures that exceed a specified height. The easement also provides for outcomes typically associated with aircraft by allowing for the right to make noise and generate dust.

Award letter

An award letter is the written notification provided to a prospective college student from a financial aid office detailing the amount and type of financial aid for which that student has qualified.