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The following terms may be helpful in dealing with your next real estate transaction. ABC's Of Real Estate Mortgage Set Up Mortgage Calculator Tax Glossary A 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. Related Glossary Terms: due-on-sale clause 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 that gradually rises over time. If the overall level of interest rates drops, as measured by a variety of different indexes, 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 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. Related Glossary Terms: teaser rate, index, periodic cap, life cap, formula 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 to the home to the price that you paid for the home. Capital improvements increase your property's value and its life expectancy. Related Glossary Terms: cost basis adjusted sale price An adjusted sale price is the actual selling price of a house less the expenses of sale, such as real estate agent commissions, legal fees, and so on. adjustment period or adjustment frequency This term refers to how often the interest rate for an adjustable-rate mortgage changes. Some adjustable-rate mortgages change every month, but it is more typical to have one or two adjustments per year. The less frequently your loan rate shifts, the less financial uncertainty you may have. But less frequent adjustments in your mortgage rate mean that you will probably have a higher teaser, or initial interest, rate. (The initial interest rate is also called the "start rate.") annual percentage rate (APR) This figure states the total yearly cost of a mortgage as expressed by the actual rate of interest paid. The APR includes the base interest rate, points, and any other add-on loan fees and costs. The APR is thus invariably higher than the rate of interest that the lender quotes for the mortgage. appraisal Mortgage lenders require an appraiser to give an opinion of the market value of a house a homeowner wants to sell or refinance. This professional opinion helps to protect the lender from lending money on a house that is worth less than the amount the buyers have agreed to pay for it or that the seller wishes to obtain when refinancing the existing loan. For typical houses, the appraisal fee is in the $200 to $300 range and is usually paid for by the borrower. appreciation/depreciation Appreciation refers to the increase of a property's value. Depreciation (the reverse of appreciation) is when a property's value decreases. arbitration of disputes A method of solving contract disputes that is generally less costly and faster than going to a court of law. In arbitration, buyers and sellers present their differences to a neutral arbitrator who, after hearing the evidence, makes a decision that resolves the disagreement. The arbitrator's decision is final and may be enforced as if it were a court judgment. Consult a real estate lawyer if you are ever a party in an arbitration. Related Glossary Terms: mediation of disputes assessed value The assessed value is the value of a property for the purpose of determining property taxes. This figure depends on the methodology used by the local tax assessor and, thus, may differ from the appraised or market value of the property. assumable mortgage Some mortgages allow future buyers of your home to take over the remaining loan balance of your mortgage. If you need to sell your house but interest rates are high, having an assumable mortgage may be handy. You may be able to offer the buyer your assumable loan at a lower interest rate than the current going interest rate. Most assumables are adjustable-rate mortgages -- fixed-rate, assumable mortgages are nearly extinct these days because lenders realize that they lose a great deal of money on these types of mortgages when interest rates skyrocket.