Appendix C
Glossary
The terms that appear in italic type within the definitions are defined in this glossary.
acceleration clause: Watch out for an acceleration clause in your mortgage contract. This provision gives the lender the right to demand payment of the entire outstanding balance if you miss a monthly payment, sell the property, or otherwise fail to perform as promised under the terms of your mortgage. (See also due-on-sale clause.) Ouch!
adjustable-rate mortgage (ARM): An adjustable-rate mortgage is a mortgage whose interest rate and monthly payments vary throughout its life. ARMs typically start with an unusually low interest rate (see teaser rate) that gradually rises over time. If the overall level of interest rates drops, as measured by a variety of indexes (see index), the interest rate of your ARM generally follows suit. Similarly, if interest rates rise, so does your mortgage’s interest rate and monthly payment. Caps (see also periodic cap and life cap) limit the amount that the interest rate can fluctuate. Before you agree to an adjustable-rate mortgage, be sure that you can afford the highest payments that would result if the interest rate on your mortgage increased to the maximum allowed.
adjusted cost basis: For tax purposes, the adjusted cost basis is important when you sell your property because it allows you to determine what your profit or loss is. You can arrive at the adjusted cost basis by adding the cost of the capital improvements that you’ve made ...
