The Ultimate Homeowner Dictionary (A-B)

What’s an Adjustable Rate?
An adjustable rate, often referred to as an Adjustable Rate Mortgage (ARM), is a type of loan where the interest rate can change periodically based on the performance of a specific benchmark or index. Unlike fixed-rate loans, where the interest rate remains constant throughout the life of the loan, an adjustable rate can increase or decrease, which directly impacts the size of your monthly payments.

What’s an Ad Valorem Tax?
Ad valorem tax is a tax based on the assessed value of an item, such as real estate or personal property. The term "ad valorem" is Latin for "according to value," meaning the amount of tax you owe is directly proportional to the value of the property being taxed. This type of tax is commonly used for property taxes, where the tax rate is applied to the assessed value of real estate or other valuable assets.

What’s the Affordability Index?
The affordability index is a measure used to determine how affordable it is for the average person or household to purchase a home in a specific area. This index takes into account various factors like median household income, current mortgage rates, and median home prices to indicate whether homes in a particular market are within reach for potential buyers.

A higher affordability index means that homes are more affordable for the average person, while a lower index indicates that homes are less affordable, making it harder for individuals or families to purchase a home in that area.

What’s an Adjustable-Rate Mortgage (ARM)?
An Adjustable-Rate Mortgage (ARM) is a type of home loan where the interest rate is not fixed but adjusts periodically based on a specific benchmark or index. ARMs typically start with a lower interest rate than fixed-rate mortgages, which remains constant for an initial period (often 3, 5, 7, or 10 years). After this initial period, the rate adjusts at predetermined intervals (usually annually), depending on the current market conditions.

What’s an Amendment?
An amendment is a formal change or addition proposed or made to a legal document, statute, or constitution. The purpose of an amendment is to update, correct, or improve the original document without the need to rewrite the entire text. Amendments are commonly used to adjust laws, regulations, contracts, or policies as circumstances evolve or new information comes to light.

What’s a Balloon Mortgage?
A balloon mortgage is a type of home loan that features lower monthly payments for a set period, typically 5 to 7 years, followed by a large lump-sum payment of the remaining balance at the end of the loan term. This structure allows borrowers to benefit from lower initial payments, but it also requires them to either pay off or refinance the loan at the end of the term when the "balloon" payment is due.

What’s a Bridge Loan?
A bridge loan is a short-term loan that helps borrowers bridge the gap between the purchase of a new property and the sale of an existing one. This type of financing is typically used by homebuyers who want to purchase a new home before selling their current one. Bridge loans provide immediate cash flow to cover the down payment and other expenses related to the new property, allowing the buyer to move forward without waiting for their existing home to sell.

What’s a Balloon Payment?
A balloon payment is a large, lump-sum payment due at the end of a loan term after a series of smaller, regular payments. This payment is typically required in loans where the borrower makes relatively low monthly payments during the loan's life, leaving a substantial balance to be paid off at the end. Balloon payments are most commonly associated with mortgages, auto loans, and certain types of business loans.

What’s a Broker’s Fee?
A broker’s fee is a payment made to a broker for facilitating a transaction between a buyer and a seller. This fee is typically a percentage of the transaction amount and is paid when the transaction is successfully completed. Broker’s fees are commonly associated with real estate transactions, where they compensate real estate agents for their services in helping clients buy, sell, or rent properties. However, broker’s fees can also apply to other types of transactions, such as securing a mortgage, arranging investments, or finding tenants for rental properties.

What’s a Budget Surplus?
A budget surplus occurs when an individual’s income exceeds their expenses over a specific period. This financial situation indicates that you’re earning more than you’re spending, which provides an opportunity to save, invest, or pay down debt. A budget surplus is the opposite of a budget deficit and is a key indicator of good financial health.