Jumbo loan
Also known as a non-conforming loan. The
amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac.
Late charge
The penalty charged to the borrower when
a payment is made past the due date and any allowable grace period.
Lender
An individual or business entity making a loan.
Lien
A legal claim of a creditor on the
property of another as security for a debt.
Lien holder
An individual or entity that has
placed a lien on real property.
Lifetime adjustment cap
A limit on how much the variable
interest rate can increase during the term of a loan.
Line of credit
An agreement by a lender to extend
credit up to a maximum amount for a specified time. In a home equity line of credit, the
line of credit is secured by the borrower's home.
Listing price
The asking price of
the home, or the price the home is listed for.
Liquidate
To sell assets for
the purpose of accumulating cash.
Loan application
The process of providing
financial and other information (such as employment history and proposed
collateral) by a prospective borrower in conjunction with a request
for credit.
Loan amount
The amount of debt,
not including interest.
Loan term
The period of time during
which a loan must be repaid. For example, a 30-year fixed loan has a term of 30
years. Also called term. See maturity date.
Loan-to-value ratio (LTV)
The ratio between the unpaid
principal amount of your loan, or your credit limit in the case of a line of credit,
and the appraised value of your collateral. Expressed as a percentage.
Lock-in
A lock period refers to the
amount of time prior to closing that you can secure an interest rate for your loan.
Generally, lock periods range from 30 days to more than 90 days. Generally, the
longer the lock period, the more you pay in points or interest.
Manufactured housing
A structure that has been
partially or entirely constructed at another location and moved onto the property
(on a permanent foundation). A manufactured home may or may not be a mobile home.
Manufacturer's rebate
Money you'll get back from
the manufacturer if you buy a specific model and otherwise comply with the terms
of the rebate program.
Margin
The number of percentage
points the lender adds to the index rate to determine the interest rate.
Market value
The likely selling price of
a home between a willing buyer and a willing seller on the open market. In a mortgage
or a home equity loan, the fair market value is usually determined by an appraisal.
Also called fair market value.
Maturity date
The day on which all outstanding
principal, interest and fees must be repaid.
Minimum payment
The minimum amount you must pay
(usually monthly) on your account to avoid a delinquency. Some loans may permit a
minimum payment of interest only. Other loans may require a minimum payment of principal
and interest. Many other variations of minimum payments exist.
Mobile home
A type of residence that's built
upon a wheeled chassis that can be transported from site to site.
Modular home
A factory-built home that's erected
on-site, with the appearance and characteristics of a site-built residence.
Monthly payment
The amount paid each month toward
the principal and interest amount of a loan. The monthly payment may or may not include
taxes and insurance.
Monroney sticker price
The information contained on the
sticker that's taped to the side window of every new and used car offered by every
dealer. It tells you the base price of the car, the options that are already installed,
the freight charge, the MSRP and the fuel economy. Federal law requires the label and
it is illegal for anyone to remove it other than the buyer.
Mortgage
A legal document giving a lender
a lien on real estate to secure repayment of a loan. Mortgage loans generally run from
10 to 30 years, after which the loan is required to be paid off. Also called
deed of trust and/or security deed.
Mortgage insurance
Insurance that protects the lender
if you default on your loan. This insurance usually costs from 0.15% to 2.5% of the loan
amount. If your down payment is less than 20%, most lenders will require you to get
mortgage insurance. Also called private mortgage insurance (PMI).
Mortgage points
A point is equal to 1% of the
principal amount of your loan. Mortgage points are usually collected at closing. Also
called points.
Mortgagee
The lender or other party named in
the mortgage as the party who's entitled to receive repayment of the home loan.
Mortgagor
The borrower, or other party named
in the mortgage as the party obligated to repay the home loan.
MSRP
An acronym for manufacturer's suggested
retail price. The amount for which the manufacturer would like to sell the car.
Multi-family residence (two to four units)
A residential property with two to
four individual housing units (duplex, triplex, quadplex).
Negative amortization
The result when monthly payments
don't cover all the interest due on the loan. The unpaid interest is added to the unpaid
balance, which means the homebuyer will owe increasingly more than the original
amount of the loan.
Non-conforming loan
A mortgage loan that's not eligible
for sale to Fannie Mae and Freddie Mac due to non-standard features. These loans are often sold
on the secondary market to private investors or held in the lender's portfolio as an asset.
Non-owner occupied
Properties in which
the owner does not live.
Notarize
Act by a notary public who
witnesses the signing of documents, authenticating the identity of the signer.
Note
A written agreement in which the
signer promises to pay to a named person or company a specific sum of money at a specified
date or on demand.
Open-end lease
This lease leaves open the amount
you may have to pay at the end of the lease term, as opposed to a closed-end lease. At
the end of an open-end lease, you will have to pay the difference between the residual
value and fair market value of the car, if the fair market value is lower.
Origination date
The date on which a loan was
closed. See closing.
Origination fee
A fee imposed by a lender to cover
certain processing expenses in connection with making a loan. Usually a percentage of the
amount loaned (often 1%).
Outstanding balance
The balance owed on a debt on a given day.
Owner-occupied
A property that the owner occupies either as a principal residence or second home.
Payment
The periodic amount of money to be paid by the borrower to reduce the balance
of a loan. Sometimes referred to as principal and interest or P& I.
Payment cap
A limit on how much a monthly payment can increase at any one time. Some adjustable-rate
mortgages have payment caps in addition to annual (or semi-annual) interest rate caps and
lifetime interest rate caps. Payment caps don't limit the amount of interest charged and
may cause negative amortization. Also called a cap.
P&I
An acronym meaning principal and interest. Principal and interest accounts for the majority
of your mortgage payment, but doesn't include escrow payments for taxes, insurance, and any
other costs that are paid monthly, or fees that periodically come due.
Per diem interest
The amount of interest that accrues daily on a loan. This is calculated by multiplying the
outstanding loan balance by the annual rate of interest and then dividing the result by 365.
PITI
An acronym for principal, interest, taxes and insurance. Also referred to as the
monthly housing expense.
PMI
An acronym for private mortgage insurance. If your down payment is less than 20%, most lenders
will require you to get private mortgage insurance. This is insurance that protects the lender
if you default on your loan. This insurance usually costs from 0.15% to 2.5% of the loan amount.
Also called mortgage insurance.
Points
Each point is equal to 1% of the loan amount (for example, two points on a $100,000 mortgage
would cost $2,000). Points, if charged, are usually collected at settlement with all other closing
costs. Negative points reflect the amount that will be credited to you and reduce the amount of
closing costs you will pay. Also referred to as discount points.
Prepaid expenses
The expenses that are usually paid in advance, such as escrows for taxes
and insurance, which are paid at closing.
Prepaid interest
The interim interest that's collected at closing of a first mortgage, covering
the period from the date of disbursement to the first of the next month.
Prepayment penalty
A penalty assessed by some lenders if a loan is paid off early. This is a lump-sum amount
due and payable in addition to the loan balance, and is usually limited to the early years
of a mortgage. Not all loans have prepayment penalties.
Preparation charges
The charges you pay the dealer for preparing your new car for delivery. These costs may
include fueling and servicing the car as well as any cosmetic changes the dealer makes
before the sale.
Prequalification
The process of providing financial and other information (such as employment history and
proposed collateral) by a prospective borrower in conjunction with determining how much loan
the borrower can obtain for the purchase of a home.
Previous balance
The amount you owed at the end of the previous payment period. If your credit card company
calculates your finance charge using the previous balance method, you pay interest on that amount.
Any payments, credits or new purchases made during the current payment period are not counted.
Primary applicant
The applicant whose name appears first on the application.
Primary residence
This is the home in which a borrower resides most of the time.
Prime rate
The interest rate that banks charge to their most creditworthy customers on short-term loans.
Principal
The amount of money borrowed on a loan.
Processing fee
A fee charged to cover the administrative costs of processing your loan request.
Property tax
A fixed percentage based on the appraised value of your home that you pay to the county in
which the home is located. The specific percent varies dramatically from county to county in every
part of the country. You pay this tax annually, semi-annually or as part of your monthly mortgage
payments. Depending on when you actually close your loan, some of this property tax may be due
at the time of closing. The local county assessor's office can give you the rate for your county.
Rate
The rate of interest on a loan, expressed as a percentage of 100.
Rate cap
A limit on how much the interest rate can change, either per adjustment period or over
the term of the loan.
Reconditioning reserve
An auto leasing term synonymous with a security deposit. This is a deposit you pay in the
event a leased auto's condition deteriorates to a point where reconditioning is necessary.
Refinancing
Paying off one loan with the proceeds from another loan, generally using the same
property as collateral.
Relocation
The process of moving one's residence from one location to another, often having to
do with a change of employment.
Repayment period
In a line of credit, the period when no advances of principal are available and during
which the line must be fully repaid, according to the payment terms. In a home equity line
of credit, the repayment period is the portion of the loan term that follows the draw period.
Rescission
The cancellation of a contract. In certain real estate-secured transactions that involve the
refinance of a primary residence, applicants have three business days to cancel the transaction.
Real Estate Settlement Procedures Act (RESPA)
The federal law that defines the rules for proper disclosure of fees and information
related to residential real estate transactions.
Residual value
The remaining value of your new car at the end of the lease term. It's also
called book value, and includes normal depreciation.
Revolving line of credit
A line of credit that allows up to the credit limit amount to be re-borrowed in repeated
transactions once it's been repaid. A home equity line of credit is a type of revolving
line of credit.
Savings rate
The rate of return you receive on your investments, stated as a yearly percentage
rate. Also called the rate of return.
Secondary market
The market in which lenders and investors buy and sell existing mortgages or
mortgage-backed securities, which in turn provides greater availability of funds
to lenders for additional mortgage lending.
Second mortgage
The traditional term for a home loan that's a subordinate lien and not a first
mortgage, such as a home equity loan or line of credit.
Secured loans
Loans for which you've given the lender a lien on property such as an auto, boat
or other personal property or real estate that will serve as collateral for the loan.
Secure Socket Layer (SSL)
A protocol designed to increase security on the Internet. It allows encrypted
files to be transferred from one computer to another.
Security interest
The legal right an owner gives to a lender to use the owner's property as collateral
for repayment of a debt to either the owner or another borrower.
Settlement
The completion of a property's sale or purchase, or the completion of all steps necessary
to receive the proceeds of and create an obligation to repay a loan. Also called a closing.
Settlement costs
Fees paid at, or prior to, the closing of your loan. They may include attorneys' fees, as
well as fees for preparing and filing a mortgage, and for taxes, title search, and insurance.
They're all the expenses incurred in obtaining the loan and in transferring the ownership of
property from the seller to the buyer. Generally, settlement costs range from 2% to 5% of the
mortgage amount. Also called closing costs.
Single-family residence (SFR)
A detached individual housing unit. The property shares no common ground with neighboring
properties and shares no wall or roof, but can be part of a planned unit development (PUD).
Tax rate
The percentage of your income that you owe in income taxes.
Tax savings
The amount you may save in taxes by itemizing deductions on income tax returns. Mortgage
interest and property taxes are two expenses that you may realize tax savings on, since you
may be able to deduct these expenses from your income. Always check with your tax advisor
for advice on tax deductibility.
Term
The number of years it will take to pay off a loan. The loan term is used to determine the
payment amount, repayment schedule and total interest paid over the life of the loan. For
example, at the following terms a loan of $200,000 with a 7.500% APR would have the following
payments and total interest paid:
15-year mortgage: 180 monthly payments of $1,854 each and total interest paid of $133,724.
20-year mortgage: 240 monthly payments of $1,611 each and total interest paid of $186,886.
30-year mortgage: 360 monthly payments of $1,398 each and total interest paid of $303,435.
Example assumes an 80% loan-to-value ratio, based on an APR of 7.500% and no points. Amounts
may be rounded up. Closing costs apply. If the down payment is less than 20%, mortgage insurance
may be needed, which could increase the monthly payment and APR. For adjustable rate loans, rates
are subject to increase after the initial fixed-rate period. Loans are subject to credit approval.
Flood and/or property insurance may be required. Rates and terms are subject to change without
notice and may vary depending upon your credit history.
A 15-year mortgage compared to a 30-year mortgage, using this information, would save
you $169,711 in interest.
Third-party fees
Fees charged for services rendered by parties other than the borrower or the lender. Such
fees may include appraisal, credit report, title and flood certifications.
Title
Written evidence of ownership in property.
Title insurance
Insurance that protects an interested party, either the owner or the lender, against
defects that would affect legal ownership of the property.
Title search
An examination of records used to determine the legal ownership of property and all
liens and encumbrances on it. Usually performed by a title company or attorney.
Titleholder
The legal owner of real property, including a home or automobile.
Total cash required to close
The total of all closing costs, points, prepaid expenses, down payment
and any other fees or adjustments due at closing.
Total housing expense
The total of all of your combined expenses due to the ownership of property,
including: principal, interest, property taxes, homeowners' insurance, mortgage
insurance, homeowners' association dues and any special assessments.
Townhome
A type of residence that shares common walls with other dwellings.
Transaction fee
The fee that may be charged each time you draw on your credit line.
Truth-in-Lending Act
A federal law requiring disclosure of credit terms using a standard format. This is intended
to facilitate comparisons between the lending terms of different financial institutions.
Types of loans
Major types of loans include:
Mortgage loans. Loans you take out to pay for your home.
Home equity loans and lines of credit. Loans you take out using the equity in
your home as collateral.
Consolidation loans and refinancings. Loans you take out to repay other loans.
Personal property secured loans. Loans you take out to pay for an auto, boat or other
personal property that will serve as collateral for the loan.
Underwriting
The lender's process of deciding whether to make a loan to a potential borrower based
on credit, employment, assets and other factors, and the matching of this risk to an
appropriate rate, term and loan amount.
Unsecured lines of credit
Revolving line of credit that is not secured, typically accessed with a
check or credit card.
Upfront costs
The costs you must pay when applying for a loan. Typically these include
loan application fees. Some lenders require some of your closing
costs also be paid when you apply.
VA
An acronym for the Veterans Affairs, a branch of the federal government that
provides home loan guarantees for qualified veterans of U.S. military forces.
Variable rate
An interest rate that may fluctuate or change periodically, often in relation
to an index, such as the prime rate or other criteria. Payments may increase or
decrease accordingly.
