Mort­gage terms to know

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(ARM): A loan with change­able rates and terms.

An­nual per­cent­age rate (APR): A mort­gage’s yearly in­ter­est rate. The APR rep­re­sents the ac­tual an­nual cost of credit over the life of the loan, in­clud­ing in­ter­est, service charges, point and loan fees.

As­sum­able mort­gage: A mort­gage that can be taken over by an­other buyer, without having the bal­ance on the mort­gage come due.

Bal­loon mort­gage: Amort­gage with monthly pay­ments, fol­lowed by a lump sum due at the end of the loan term.

Cap: A limit placed on ad­justable-rate mort­gages to pro­tect the bor­rower from large in­ter­est-rate in­creases. Also, a limit on the amount that an in­ter­est rate or a monthly pay­ment can in­crease dur­ing the ad­just­ment pe­riod or the life of a loan.

Con­ven­tional loan: A fixed-rate, fixed-term mort­gage loan not ob­tained un­der a gov­ern­ment-in­sured pro­gram.

Fixed-rate mort­gage: A mort­gage whose in­ter­est rate does not change dur­ing the life of the loan.

In­dex: A statis­tic that in­di­cates cur­rent eco­nomic or fi­nan­cial con­di­tions. Ad­justable-rate mort­gages are based on the move­ment of a spe­cific in­de­pen­dent in­dex.

Mort­gage bro­ker: A bro­ker who, for a fee, places loans with dif­fer­ent in­vestors.

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