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Real Estate Terms Defined – Part 1

As seasoned real estate professionals in Southern New England, we get a lot of the same questions asked repeatedly. Sometimes clients understand our explanations and sometimes they do not understand. So, to help all those potential first-time homeowners out there, we have collected the most used terms from the real estate industry and defined them here. This way, as you continue researching the home buying and home selling process, you can easily reference these terms and they meanings to gain a more complete perspective on the real estate transaction process. Let’s get started:

Absorption Rate

An absorption rate refers to how quickly a real estate market sells its housing inventory. The absorption rate is a vital metric for real estate professional and clients because it provides a realistic image of the current state of the real estate market in any given geographical area. Realtors and brokers use absorption rates to accurately read the housing market. The Absorption rate indicates how “hot” the market is, how quickly you can expect to sell a new listing, and if the timing it right to sell a home or not.

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage is a type of mortgage that allows the interest rates to vary throughout the life of the loan. The most important feature of an ARM includes:

  • Initial interest rate: The ARM starting interest rate
  • Adjustment Period: The length of time in which the ARM’s initial interest rate stays the same. This period varies from lender to lender.
  • Index: Indexes vary from lender to lender, but one of the most common are the maturity yield on one-year treasury bills.
  • Margin: The percentage points that lenders add to their index rate in order to calculate the ARM’s actual interest rate that you pay.
  • Interest rate caps: The limit to how much the interest rate or the monthly payment can be adjusted each time the interest rate is recalculated.
  • Conversion: A clause that allows borrowers to convert their ARM into a fixed-rate mortgage at fixed points throughout the length of the ARM loan. A fixed-rate mortgage does not have a fluctuating interest rate.

Addendum & Amendment

There are times during a real estate transaction when changes must be made to the contract. In such cases, an addendum and/or amendment will be used either because of previously undiscovered issues with the home or other reasons. Simply put, an addendum is an addition to the contract. This could happen when the buyer requests to keep the seller’s furniture, curtains, light fixtures, etc.


Amortization is the process of spreading a loan payment over an extended period, by scheduling monthly (or bi-monthly) payments. These regular payments are split into two main portions: principal and interest payments. By spreading loan repayments over a long period of time, amortization allows most people to buy goods we otherwise could not afford, such as homes, new cars, etc.


The terms Appraisal refers to the process of calculating the real market value of a piece of property by a qualified expert. The main objective of an appraisal is to help lenders determine the real value of a home in order to not lend the borrower more money than necessary or than the home is worth.

Meet Our Team

real estateNoonan Lombardi Realtors is here to assist with all your real estate needs across Southern New England. In addition to our expert team of experienced realtors working for every client, our team uses the highest-level technology to market and sell your home.  From sell sheets to social media and MLS real estate searches integrated into our website, our realtors work hard, sell home fast and keep clients very satisfied.

Reach out to our team today (401) 580-8672 for all your property managementrental property and real estate needs.

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