# I

Impounds
Same as Escrow.

Indexed ARM
An ARM where the interest rate routinely adjusts based on changes in an interest rate index. This is as opposed to a “discretionary ARM” where the lender can change the rate at any time subject only to advance notice. All Adjustable Rate Mortgages in the US are indexed.

Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing. At the beginning of the life of an ARM it is fixed for some specified number of months with the rate subsequently changing. The initial rate is sometimes referred to as a “teaser” when it is below the fully indexed interest rate. It may also be called a “start rate.”

Initial rate period
The period of time (number of months) for which the initial rate holds, ranging from 1 month to 10 years.

Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).

Interest
The fee charged for borrowing money.

Interest accrual period
The period over which the interest due the lender is calculated. On most mortgages in the US the interest accrues monthly. Therefore on a 6 % mortgage for \$100,000 the monthly interest is .06/12(\$100,000) = \$500. If the interest accrues biweekly, as on a few programs in the US, the biweekly interest is .06/26(\$100,000) = \$230.77. And, if interest accrues daily, as HELOCs and others in the US do, the daily interest is .06/365(\$100,000) = \$16 .44.

Interest cost
A measure of cost to a borrower on a mortgage that is time-adjusted. It utilizes the same calculation method as the APR except the APR assumes the loan runs to term and is always measured before taxes. Interest cost is measured over the time horizon of the individual borrower. It may also be measured after taxes at the individual borrower’s tax rate. Moreover, the cost items included may be more or less inclusive than those included in the APR.

Interest due
The amount of interest, expressed in dollars, computed by multiplying the loan balance at the end of the preceding period multiplied by the annual interest rate and divided by the interest accrual period. It is the same as the interest payment except where the scheduled mortgage payment is less than the actual interest due; in this case the difference is added to the mortgage balance constituting negative amortization.

Interest-only mortgage
A mortgage where, for a period of time, the monthly mortgage payment is comprised of interest only. During such period, the loan balance remains constant. .

Interest payment
The interest paid each month in a dollar amount. So long as the scheduled mortgage payment is equal to or greater than the interest due, it is the same as interest due. If not, the interest payment is equal to the scheduled payment.

Interest rate
The rate charged the borrower each period for a monetary loan, customarily quoted on an annual basis. As an example, an interest rate of 6%, translates to a rate of 1/2% per month. A mortgage interest rate is a rate on a loan that is secured by a specific property.

On an ARM this depicts the frequency of rate adjustments after the initial rate period is over. The rate adjustment period is oftentimes but not always the same as the initial rate period.

An arrangement allowing the property seller to deposit money to an account whereby that money is then released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage.

Interest Rate Ceiling
For an adjustable rate mortgage (ARM), the maximum interest rate possible under an ARM contract. It is the same as “lifetime cap” and is frequently expressed as a specified number of percentage points above the initial interest rate.

Interest Rate Floor
For an adjustable rate mortgage (ARM), the minimum interest rate possible as specified in the mortgage contract. As a practice, floors are less common than ceilings.

Interest rate increase cap
The maximum increase in the interest rate allowed on an ARM each time the rate is adjusted. Usually it equates to 1 or 2 percentage points, but may also be 5 points if the initial rate period lasts 5 years or longer.

Interest rate decrease cap
The maximum allowable interest rate decrease on an ARM each time the rate is adjusted. Ordinarily, this is 1 or 2 percentage points.

Interest rate index
The specific interest rate series to which the interest rate on an ARM is tied; some examples of this are “Treasury Constant Maturities, 1-Year,” or “Eleventh District Cost of Funds.” The indices are published on a regular basis in readily available sources.