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Glossary

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Term Definition
Adjustable Rate Mortgage

(ARMs) Mortgage loans in which the interest rate and monthly payments may be adjusted periodically to correspond with changes in the cost of funds.

Alternative Documentation

Also referred to as “Time Saver” documentation, whereby lenders use certified copies of documents from the borrower in lieu of mailing our written verifications, i.e. copies of three months bank statements instead of a verification of deposit.

Amortization

Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments.

Amortization Schedule

A schedule showing each payment of a loan to be amortized and breaking down the payment into the amount applied to principal and the amount applied to interest.

Annual Percentage Rate

(APR) This is the cost of your credit expressed in terms of an annual rate. Because you may be paying “points” and other closing costs, the APR disclosed is often higher than the interest rate on your loan. The APR can be compared to the APR for other loans for which you may have applied to give you a fair method of comparing price.

Application

(Uniform Residential Loan Application) Loan application

Appraisal

Estimation of the current market value of the property by a certified appraiser. The appraiser determines the value by comparing at least three different properties which are similar in regards to location, construction type, and price that are located within a one mile radius and have been sold within the last 12 months.

APR

(Annual Percentage Rate) This is the cost of your credit expressed in terms of an annual rate. Because you may be paying “points” and other closing costs, the APR disclosed is often higher than the interest rate on your loan. The APR can be compared to the APR for other loans for which you may have applied to give you a fair method of comparing price.

ARMs

(Adjustable Rate Mortgage) Mortgage loans in which the interest rate and monthly payments may be adjusted periodically to correspond with changes in the cost of funds.

Assumption Fee

Lender’s charge for paperwork involved in processing records for a new buyer assuming an existing loan.

Assumption of Mortgage

Some types of mortgages allow for the transfer of mortgage on the property during real estate purchase transaction to the new homeowner. Although most banks reserve the right to call (or demand payment of) the loan when the property is sold which means that the buyer must look for a new mortgage.

Auto-debit

Direct debit is an automatic payment which is directly withdrawn from a personal checking account.

Balloon (Call) Mortgage

Mortgage requiring a repayment of the outstanding principle balance prior to full amortization.

Balloon Payment

When the final installment payment on a note is greater than the preceding installment payments and it pays the note in full.

Bridge loan

Interim Financing where a lender may offer a loan on a current property and new property together in which they require the current property to be sold within a certain amount of time and the equity is used to pay off the loan.

Buydown

Funds paid at closing to reduce the interest rate for 2 to 3 years. A “2-1 Buydown” reduces note rate 2% in the first year and 1% in second year. Loan qualifies at first year rate.

Cap
  1. Change Cap - an interest rate cap which limits the increase on the interest rate from one adjustment period to the next.
  2. Life Cap - an interest rate cap which limits the increase rate over the life of the loan.
Cash to close

Equity/Funds required for the closing.

Cashier’s check

A bank-guaranteed check which is drawn directly from the issuing personal account at a financial institution.

Closing

This is the final step in executing a real estate transaction and precedes the entry in the land register as we know it. On the closing date the seller is paid, the loan amount is paid out and the ownership is officially transferred.

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