Listed below are some definitions of the most common mortgage related terms.

Adjustable-Rate Mortgage (ARM)

A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARMs referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

 

Adjustment Period

This is the length of time for which the interest rate is fixed on an adjustable rate mortgage. After that period it will be adjusted. Typically once or twice a year depending on the index.

 

Amortization

A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.

 

Annual Percentage Rate (APR)

A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.

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