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Glossary

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Adjustable rate mortgage (ARM)
A mortgage on which the interest rate, after an initial period, can be changed by the lender. While ARMs in many countries abroad allow rate changes at the lender's discretion ("discretionary ARMs"), in the US most ARMs base rate changes on a preselected interest rate index over which the lender has no control. These are "indexed ARMs". There is no discretion associated with rate changes on indexed ARMs.
Amortization
A payment plan which enables the borrower to reduce their debt gradually through monthly payments of principal and interest.
Amortization schedule
A table showing the mortgage payment, broken down by interest and amortization, the loan balance, and perhaps other data.
Application
Solicitation of a loan by a borrower through the provision of a written request that includes information about the borrower, the property and the requested loan. In a narrower sense, the application refers to a standardized application form called the "1003" which the borrower is obliged to fill out.
Application fee
A fee that some lenders charge to accept an application. It may or may not be refundable if the lender declines the loan.
Appraisal
An expert judgment or estimate of the quality or value of real estate as of a given date.
Approval
Acceptance of the borrower's loan application. Approval means that the borrower meets the lender's qualification requirements and also it's underwriting requirements. In some cases, especially where approval is provided quickly as with automated underwriting systems, the approval may be conditional on further verification of information provided by the borrower.
APR
The Annual Percentage Rate, which must be reported by lenders under Truth in Lending regulations. It is a comprehensive measure of credit cost to the borrower that takes account of the interest rate, points, and flat dollar charges. It is also adjusted for the time value of money, so that dollars paid by the borrower up-front carry a heavier weight than dollars paid ten years down the road. However, the APR is calculated on the assumption that the loan runs to term, and is therefore potentially deceptive for borrowers with short time horizons.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required.

The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments.
Automated underwriting
A computer-driven process for informing the loan applicant very quickly, sometimes within a few minutes, whether the applicant will be approved, rejected, or asked for additional information. The quick decision is based on information provided by the applicant, which is subject to later verification, and other information retrieved electronically including information about the borrower's credit history and the subject property.