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Impound account Installment
Income property Interest/Interest rate
Index Interest rate cap
Inflation Introductory rate
Initial interest rate Investment property

Impound account
An account held by the lender used to pay insurance, property taxes or any other debt held against the property

An impound account is set up by the lender for you to prepay certain recurring costs at closing, such as property taxes, hazard insurance and mortgage insurance, if required. Each monthly payment pays into this account to pay any annual debts against the property. Escrow account is another name for an impound account.

See: Closing costs, Installment

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Income property
Any property, including land, which earns you money

Any property that someone pays you to live in (including a boarding house that you yourself live in) is considered an income property. Income properties and owner-occupied residences are dealt with differently in the buying and mortgaging process.

See: Investment property

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Index
An economic indicator that lenders use to set an adjustable rate mortgage’s (ARM) interest rate

Each ARM is tied to a specific index. It is wise to find out which index is connected to your ARM because they are prone to move up and down at different rates.

See: Adjustable rate mortgage, Interest/Interest rate, Margin

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Inflation
A decrease in the value of money

Inflation is a measure of the increase in the price of goods. Inflation generally affects your buying power - If you buy 10 candy bars with $10 one day, and inflation rockets up 10% the next day, you'll only be able to buy 9 candy bars with your $10. Inflation usually causes interest rates to rise. This is when it pays to have a fixed rate loan, rather than an adjustable rate loan. Inflation can also affect property values. An appraiser, though, usually adjusts their calculations to account for inflation when figuring out the market value of a property.

See: Interest/Interest rate

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Initial interest rate
The interest rate at which an adjustable rate mortgage (ARM) begins

The initial interest rate on an ARM is fixed for a certain period then adjusts to reflect overall market rates. Fixed rate loans, on the other hand, always have the same interest rate for the life of a loan, and the rate is usually higher than an ARM's initial interest rate.

See: Adjustment date

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Installment
Regular payments made to a lender to repay a loan

Payments on a mortgage are usually monthly or biweekly installments. If you have an escrow or impound account, your installment can be broken down into four parts, often referred to as PITI: principal, interest, taxes and insurance. So, every month, lenders collect one-twelfth of your annual taxes and insurance to place into an account. So, when these bills become due, the lender can readily pay them off.

See: Amortization

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Interest/Interest rate
The cost for borrowing a lender’s money

Interest takes into account the lender's risk and how much it costs the lender to get the money for a loan.

See: Amortization, Annual Percentage Rate (APR), Index

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Interest rate cap
The upper and lower limit on the interest rate on an adjustable rate mortgage (ARM)

Most ARMs have two types of interest rate caps. Lifetime caps, which are required by law, limit the increase and decrease of a rate over the life of a loan, and periodic caps limit the rate change from one adjustment period to the next, even if the market interest rates significantly rise or fall during this time. A lifetime cap is also referred to as a ceiling or floor.

See: Cap

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Introductory rate
An adjustable rate mortgage’s (ARM) starting interest rate, which stays fixed for a certain time then adjusts to more closely match overall market interest rates after the initial term

See: Initial interest rate

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Investment property
A property purchased to gain profit (from rent or resale)

Investing in real estate can be extremely profitable - the way to make money is to have equity, which is the money that you keep after the mortgage is paid off which makes real estate a long term investment. To build equity make a large down payment when you purchase the property, pay off the loan's principal and make improvements on the property to increase the home's value.

See: Appreciation

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