Definition: Any overdue payment amount on a debt owed. Mortgage arrears mean you have fallen behind on your mortgage loan, and arrears on credit cards mean that you have not made at least the minimum payment toward your credit card bills.
Arrears cannot only negatively effect your credit if late or missing payments are reported to the credit bureaus, but can increase the amount you owe due to fees. If your arrears on a debt are large enough, your creditor may send your debt to a collection agency for collection.
If your arrears grow too large, you may need to file for bankruptcy protection. If your mortgage loan falls into arrears, you may be forced into foreclosure proceedings.
See Also: Bankruptcy
Definition: The gradual repayment of a loan. When you take out a line of credit, be it a mortgage, credit card, or auto loan, you are generally asked to pay a payment which not only covers the accrued interest for the month, but also a part of the principal. This gradual reduction of the loan amount is the amortization. It means that if payments are made and new credit is not taken out, you will eventually be able to pay off your loans.
Amortization may also refer to the amortization period of your loan. That is the amount of time in which you are scheduled to have your loan paid in full. Generally, longer amortization periods result in lower payments at the expense of more total interest paid, while shorter amortization periods result in larger payments but less interest paid over the life of the loan.
See Also: Adjustable Rate Mortgage, Fixed-Rate Mortgage, Interest-Only Mortgage, Negative Amortization
Definition: The annual interest rate after it has been compounded, with fees. A more accurate representation of true interest for a loan or credit card than the advertised annual percentage rate.
To calculate the EAR form the APR, the following formula gives a close approximation:
(1+ APR/n)^n
For example, an advertised APR may be 9.99%. If this is compounded monthly, the actual rate is 9.99% divided by twelve, giving us a monthly interest rate of 0.8325% adding to the balance each month and compounding the next month. This gives an effective APR of 10.46%. This calculation would not include the fees associated with the credit line.
Click here for the Nominal Annual Percentage Rate (APR).
Definition: The overall interest for a loan per yearly period. This is the sum total of the interest rate charged over the compounding period (usually daily or monthly) and so does not represent the actual interest accrued.
For example, an advertised APR may be 9.99%. If this is compounded monthly, the actual rate is 9.99% divided by twelve, giving us a monthly interest rate of 0.8325% adding to the balance each month and compounding the next month. This gives an effective APR of 10.46%.
While not an accurate reflection of the interest being charged, the APR can provide a way to quickly compare lenders. The calculation can vary between lenders, so it is important to read the APR section of the loan or credit card contract.
See Effective Annual Percentage Rate for more information.
Synonyms: Variable Rate Mortgage, Tracker Mortgage
Definition: A mortgage loan where the interest rate is periodically adjusted to match an index linked to the cost to the lender of obtaining cash for the loan. In the United States, the loan is generally regulated by the Federal Government with a cap on the amount of interest chargeable by the lender.
Adjustable Rate Mortgages generally allow the lender to pass some of the risk of carrying debt to the borrower. If averages interest raise rise or fall, an ARM’s interest rate will follow. This can help borrowers in times of lower interest rates, but if locked-in, can hurt a borrower should interest rates increase.
See Also: Fixed-Rate Mortgage, Interest-Only Mortgage
Blog
Twitter