Effective Rate
The interest rate adjusted for intra-year compounding. Because interest on a mortgage is calculated monthly, a 6% mortgage actually has a rate of .5% per month. If there were no principal repayments the first year, $100 invested in a 6% mortgage would actually earn $6.17 of interest during the year because of reinvestment of monthly interest. The 'effective rate' is thus 6.17%, while 6% is termed the 'nominal' rate. Similarly, a 6% bond on which interest is paid quarterly has an effective rate of 6.14%.
Popular Mortgage Terms
A bundle of mortgage characteristics that lenders view as comprising a distinct category. The characteristics used include whether it is an FRM, ARM, or Balloon, the term, the initial ...
An upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount; e.g., '3 points' means a charge equal to 3% of the loan ...
A mortgage on which the interest rate is adjustable based on an interest rate index, and the monthly payment adjusts based on a wage and salary index. Dual index mortgages are not written ...
A borrower with the best credit rating, deserving of the lowest prices that lenders offer. ...
A plan purporting to protect FHA homebuyers against property defects. ...
Compiling and maintaining the file of information about the transaction, including the credit report, appraisal, verification of employment and assets, and so on. Mortgage brokers usually ...
A fee that some lenders charge to accept an application. It may or may not cover other costs such as a property appraisal or credit report, and it may or may not be refundable if the lender ...
The portion of the monthly payment that is used to reduce the loan balance. ...
On an ARM, the assumption that the value of the index to which the interest rate is tied does not change from its initial level. ...
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