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Adjustable Rate Mortgage (ARM):

A mortgage linked to a financial index in which monthly payments can vary over the course of the loan, usually 25 or 30 years.

Adjustment period:

The length of time between interest rate changes on an ARM.

Amortization:

Repayment of a loan in equal installments of principal and interest.

Annual percentage rate (APR):

The total finance charges, loan fees and interest expressed as a portion of the loan amount.

Assumption:

An agreement that a buyer will assume liability under an existing note secured by a mortgage or deed of trust. The lender must approve the buyer.

Balloon payment:

A lump sum of principal due at the end of some mortgages.

Binder:

An offer to purchase.

Cap:

The limit on how much interest rates or monthly payments can change, either at adjustment or overall.

CHB:

The California state Community Home Buyer program, available to first-time home buyers to help lower their down payment.

CHFA loan:

A loan guaranteed by the California Housing Finance Agency, available to first-time home buyers. It provides lower rates to those who qualify.

Conversion clause:

A statement declaring at what point an ARM can be converted into a conventional mortgage.

Escrow:

A procedure in which a third party ensures that both the buyer and seller in the settlement process meet requirements. Escrow agents handle paperwork and distribute funds.

Fee simple:

An estate in which the owner has unrestricted power to dispose of the property as he or she wishes.

FHA loan:

A mortgage guaranteed by the Federal Housing Administration.

Fixed-rate mortgage:

A finance method in which the interest rate stays the same for the period of the loan, usually 15 or 30 years.

FNMA:

The Federal National Mortgage Association nicknamed Fannie Mae, a private corporation founded by Congress to support the secondary mortgage market.

Graduated payment mortgage:

A loan which starts with initial low payments, rising to a level payment in the sixth year.