Glossary

One-year adjustable	Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.
Lock	Lender's guarantee that the mortgage rate quoted will be good for a specific number of days from day of application.
Index	A floating index lenders use to calculate the rate on a one-year adjustable-rate mortgage. The most common indexes are the one-year Treasury Constant Maturity Yield and the FHLB 11th District Cost of Funds.
Caps	The maximum amount the mortgage rate can change annually or over the life of the loan on a one-year adjustable. For example, if the caps are 2% annual and 6% life of loan, a mortgage whose first-year rate is 10% could rise to no more than 12% the second year and 16% over the entire loan term.
Margin	The number of percentage points added to the index on a one-year adjustable. For example, if the index rate is 9% and the margin is 3%, then the fully-indexed rate is 12%.
Points	A percentage of the loan amount, paid at closing. Each point is one-hundredth of the loan amount.
Indexed rate	The sum of the published index plus the margin. For example if the index were 9% and the margin 2.75%, the indexed rate would be 11.75%. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.
Annual Percentage Rate (APR)	Interest rate reflecting the first-year rate including certain points and credit costs.
COFI	Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds index, often the 11th District Cost of Funds.
Buydowns	Mortgage in which the rate is offset by paying more points up front.
7/23 and 5/25 Mortgages	Mortgages with a onetime rate adjustment after seven years and five years respectively.
3/1, 5/1, 7/1 and 10/1 ARMs	Adjustable-rate mortgages in which rate is fixed for three-year, five-year, seven-year and 10-year periods, respectively, but may adjust annually after that.
Balloon	Loan in which little, if any, of your monthly payments go toward paying off the outstanding balance. Rather, one large, lump-sum payment is due at maturity.
Jumbo Mortgages	Mortgages that go over the $207,000 Fannie Mae and Freddie Mac limit.
Loan-to-Value Ratio	Proportion of a home's value upon which an institution will issue a loan.
Negative Amortization	When interest rates increase faster than monthly payments, on an adjustable-rate mortgage, your balance may grow despite efforts to pay it down.