1 Year ARM A 1 year ARM is a loan with a fixed rate for the first year that has a rate that changes yearly for the remaining life of the loan.
10 Year ARM A 10 year ARM is a loan with a fixed rate for the first 10 years that has a rate that changes once each year for the remaining life of the loan.
10 Year Fixed Rate Mortgage A 10 year fixed rate mortgage is a loan with the same interest rate and payment over the entire 10 year life of the loan.
15 Year Fixed Rate Mortgage A 15 year fixed rate mortgage is a loan with the same interest rate and payment over the entire 15 year life of the loan.
2 Year ARM A 2 year ARM is a loan with a fixed rate for the first 2 years that has a rate that changes once each year for the remaining life of the loan.
20 Year Fixed Rate Mortgage The 20 year fixed rate mortgage is a good way to have fixed payments and shorten the term of your loan. You will build equity faster, pay less interest, and own your home sooner. Your monthly payments will be higher since the term is shorter.
25 Year Fixed Rate Mortgage The 25 year fixed fixed rate mortgage is a good way to have fixed payments and shorten the term of your loan. You will build equity faster, pay less interest, and own your home sooner. Your monthly payments will be higher since the term is shorter.
3 Year ARM A 3 year ARM is a loan with a fixed rate for the first 3 years that has a rate that changes once each year for the remaining life of the loan.
30 Year Fixed Rate Mortgage The 30 year fixed rate mortgage is one of the most popular home loans. Many people like the fixed interest rate and lower monthly payments. But since the term of the loan is long, you will pay more interest over the life of the loan.
40 Year Fixed Rate Mortgage The 40 year fixed rate mortgage will have the same interest rate and payment over the entire 40 year life of the loan. As one of the longer loan terms available, 40 year fixed loans offer lower payments, but you will pay more in interest over the life of this loan than a similar loan with a shorter term. It is a relatively newer option in the lending industry.
5/1 ARM A 5/1 ARM is a loan with a fixed rate for the first 5 years that has a rate that changes once each year for the remaining life of the loan.
50 Year Fixed Rate Mortgage The 50 year fixed rate mortgage will have the same interest rate and payment over the entire 50 year life of the loan. As one of the longer loan terms available, 50 year fixed loans offer lower payments, but you will pay more in interest over the life of this loan than a similar loan with a shorter term. It is a relatively newer option in the lending industry.
7 Year ARM A 7 year ARM is a loan with a fixed rate for the first 7 years that has a rate that changes once each year for the remaining life of the loan.
Acceleration Clause A term in a mortgage agreement that requires the borrower to pay off the loan immediately under certain conditions.
Accounts Receivable Financing Accounts receivable financing, also known as “factoring,” is a practice in which a business sells its invoices to a third-party financial company to collect upon.
Accrued Interest The amount of mortgage interest that has been earned but not yet paid.
Adjustable Rate Mortgage (ARM) A mortgage with an interest rate that can change during the term of the loan. The timing and calculation of adjustments (also called resets) are determined by the loan program, and these details are disclosed in the mortgage documents.
Adjustment Interval The time between interest rate adjustments of an adjustable rate mortgage (ARM).
Amortization Amortization is the gradual reduction of a debt by regular scheduled payments of interest and principal.
Amount Owed on Trade If your current car is not paid off, the dealership will look at the amount you currently owe on the car.
Annual Fee A credit card issuer may charge you a fee each year for your account.
Annual Income This is the combined annual income for you and your co-borrower.
Annual Percentage Rate The cost of credit, including the interest and fees, expressed as an interest rate. APR was created to make it easier for consumers to compare loans with different rates and costs, and by law it must be disclosed in all advertising.
Appraisal A written estimate of the value of real or personal property prepared by a qualified appraiser. Mortgage lenders almost always require a property appraisal before approving a home loan.
Appreciation Added value to real estate or other assets that is the result of increasing prices.
Asking Price The price requested by a seller when a home or property is listed for sale. This amount is often open to negotiation.
Assumable Mortgage A mortgage that may be “taken over” by a qualified third party. Most assumable mortgages are government-backed products like VA, FHA and USDA home loans.
Assumption Indemnity Clause A clause informing buyers that they must agree to assume all of the obligations of the original borrower under the terms of the instruments creating and securing the loan.
Auto Refinance An auto refinance is the process of applying for a new auto loan to pay off your existing auto loan, hopefully with a better interest rate and better terms.
Balloon Mortgage A balloon mortgage is usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time.
Bankruptcy A proceeding in a federal court in which a borrower who owes more than his or her assets, can relieve the debts by transferring his or her assets to a trustee. Different chapters or types of bankruptcy exist. If a person files bankruptcy, a record of the filing appears on the borrower's credit report for up to 10 years.
Bidding War A process in which two or more parties attempt to get their offer accepted by a seller, usually by making repeated offers at higher amounts.
Borrower A borrower is a buyer who does not pay cash, but instead finances some or all of a purchase.
Break-Even Point The break-even point is the point at which the monthly savings created by a mortgage refinance offsets the cost of refinancing. It can also refer to the point at which the savings generated by paying discount points covers the cost of those points.
Bridge Loan A bridge loan is a short-term loan designed to cover the time it takes a borrower to secure permanent financing or remove an existing obligation.
Broker An individual who arranges financing or negotiates a contract on a client’s behalf and earns a commission for doing so.
Business Acquisition A business acquisition is a transaction in which a company buys most (if not all) of another company’s ownership stakes in order to assume control of that company.
Business Capital Business capital refers to the financial assets needed for a business to produce the goods and/or services it offers to its customers. Capital is necessary for a business to maintain its operations.
Business Certificate of Deposit A business certificate of deposit (CD) is issued when a business chooses to deposit money in a commercial bank for a specified length of time in order to earn interest on the sum deposited.
Business Credit Business credit is a way for potential lenders, vendors, suppliers, and others to evaluate a business’ creditworthiness.
Business Credit Card A business credit card is a credit card issued by a financial institution to a business so that it may borrow funds when making purchases.
Business Goodwill Business goodwill is an accounting term that signifies a business’ intangible assets, such as a company’s brand name, loyal customer base, good public reputation, patents, and proprietary processes and technologies. This is opposed to tangible assets, such as real estate or equipment.
Business Mortgage A business mortgage is also known as a commercial mortgage. It is a mortgage loan taken out on a commercial property like an office building, warehouse, or shopping center.
Buydown A buydown is a financing technique in which money is paid upfront to temporarily reduce a loan’s interest rate and lower the payment.
Caps (Interest) Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.
Caps (Payment) Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.
Cash Back Auto Refinance Cash back auto refinances could give you cash when you refinance your loan, however, you'll want to make sure you are lowering your interest rate (and possibly your monthly payment) or improving your terms.
Cash Flow Cash flow is an accounting term representing the difference in the amount of cash a business has at the beginning of a period compared to the amount it has at the end of that period.
Cash-Out Refinancing A refinance in which the new loan amount exceeds the total needed to pay off the existing mortgage. The difference goes to the borrower and can be used for any purpose.
Certificate of Incorporation A certificate of incorporation is a legal document issued by a state office in order to register a newly organized corporation. It is considered a license to form a corporation.
Closing The procedure at the end of a property sale or refinance in which funds legally change hands and public records are filed. Closing is also called settlement.
Closing Costs Closing costs include a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 percent to 6 percent of the mortgage amount.
Collision Insurance Insurance which covers damage to a vehicle that results from a collision with another vehicle or object.
Commission The fee charged by an agent or broker for representing a buyer or seller’s interest. A commission is generally a percentage of the sales price.
Competitive Market Analysis A report prepared by a real estate agent that determines a house's market value. The agent compares the house's attributes to similar properties in the area that have recently sold or are still on the market. The CMA is often used to establish the listing price.
Comprehensive Insurance Insurance which covers damage to a vehicle caused by events other than a collision, such as flood, fire, hail, theft, or vandalism.
Condominium Individually-owned unit within a multi-unit development or complex, including an individual interest in the common areas and facilities used by the owners.
Condominium Association An association of unit owners in a condominium building. The association elects a board of directors, which handles the maintenance and repair of common areas, disputes among unit owners, and enforcement of rules and regulations, and condominium fees.
Condominium Fees Also called maintenance fees, the monthly fees paid by all condominium owners. The condominium fees go toward the maintenance and repair of common areas in the building, as well as salaries for groundskeepers, repairmen and security guards. The condominium fees are set and managed by the condominium association, and are typically determined based on the size of your unit.
Conforming Loan A conforming loan is any loan that meets the criteria and limits set forth by the two largest buyers of loans, Fannie Mae and Freddie Mac.
Consolidating Debt Replacing several debts or loans by transferring the balances to a single loan or line of credit, usually at a better rate. (Debt consolidation loans are often home equity loans or lines.)
Construction Loan A short term interim loan for financing the cost of construction. The lender advances funds to the builder as the work progresses.
Consumer Loan A consumer loan is when a person borrows money from a lender, either unsecured or secured. There are several types of consumer loans and some of the most popular ones include mortgages, refinances, home equity lines of credit, credit cards, auto loans, student loans, and personal loans.
Consumer Reporting Agency An organization commonly referred to as a credit bureau that prepares credit reports which are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository and from other sources.
Conventional Loan A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate.
Conventional Mortgage Any mortgage which is not insured or guaranteed by a government agency such as HUD/FHA, VA, or the Farmers Home Administration.
Conversion Option A conversion option allows you to convert an ARM to a fixed rate mortgage. You will likely pay a higher rate or more points to have this option.
Cooperative Housing An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.
Corporation A corporation is a company or a group of people who are legally authorized to act as an individual entity.
Cosigner Another person who signs your loan and assumes equal responsibility for it.
Covenants, Conditions, and Restrictions (CC&Rs) A set of rules and regulations governing a condominium building. The CC&Rs can include restrictions on things such as noise levels, pet ownership, and renovations. These rules are enforced by the condominium association.
Credit The right granted by a creditor to pay in the future in order to buy or borrow in the present; also, a sum of money owed to a person or business.
Credit Limit A credit limit is the maximum amount of charges that may be charged to an account.
Credit Ratio A credit ratio is expressed as a percentage and results when a borrower's monthly payment obligation on long-term debts is divided by his or her net income (FHA/VA loans) or gross monthly income (Conventional loans).
Credit Report A credit report is a report of an individual's credit history that a credit reporting company or credit repository prepares to determine a borrower's creditworthiness.
Credit Reporting Company Company that collects information received from more than one credit repository, merges all the information, and reports it in one form; merged credit reports.
Credit Score A credit score is a number generated by a statistical system used to rate the credit of an applicants according to various characteristics relating to creditworthiness.
Cs of Creditworthiness (4 Cs) The four Cs of creditworthiness are character, capacity, capital, and conditions. These are the elements potential lenders examine when determining whether to extend credit to a business.
Curb Appeal The initial attractiveness of a property, when viewed from the road. Sellers and real estate agents will often try to increase the curb appeal of a home by cleaning up the porch, trimming plants along a walkway, or giving the outside of a home a fresh coat of paint.
Current Balance When referring to a loan, such as an auto loan or a mortgage, your current balance is the amount you currently still owe on the loan according to the date of your statement.
Dealer Charges Charges for extra services or products sold by the dealer, including rust proofing, undercoating and extended warranties.
Dealer Holdback Dealer holdback is an amount, typically two to three percent of the manufacturer’s suggested retail price (MSRP), that is part of the invoiced price the dealer pays the manufacturer when it buys a car. However, this amount is actually returned to the dealer after the car is sold. That’s why it’s called a holdback – because it’s “held back” by the manufacturer but rebated at a later date.
Dealer Incentives Bonuses offered by manufacturers to dealerships to increase the sales of specific models or to reduce excess inventories. Dealers may elect to pass on the some or all of these amounts to buyers. Often, the dealer gives the buyer a choice of a special dealer finance rate or a manufacturer's rebate. In many cases, the rebate will be a better deal. However, buyers should do their own calculations, as each deal is different.
Dealer Invoice The amount an auto dealership pays the manufacturer for a vehicle it puts on its lot. This amount does not always indicate the amount the dealership has paid for the car, however. Dealer holdbacks, incentives and other reimbursements can change that cost quite a bit.
Dealer Sticker Price Dealer Sticker Price is the price the dealer would like to get for the car, but for most transactions it’s just a starting point for negotiations. This is also referred to as the manufacturer's suggested retail price (MSRP).
Debt Consolidation Debt consolidation is a process by which several debts are replaced by one debt. The idea is to simplify repayment and hopefully make it more affordable as well.
Default Failing to repay a debt as agreed. Defaulting on an obligation can have serious consequences, including but not limited to lawsuits, eviction, collections, derogatory credit history, late fees, auto repossession, wage garnishment, home foreclosure and / or being forced into bankruptcy. When borrowers default on mortgages, lenders must file a Notice of Default (NOD) or Lis Pendens (a notice that there may be litigation related to the property) before they can proceed with foreclosure. Once the notice has been filed, borrowers have a limited amount of time to “cure” the default by bringing their mortgage current or coming to some agreement with the lender. The NOD is a publicly recorded document.
Deferred Interest Interest that has accrued but not been paid. Mortgage interest is paid in arrears, which means the borrower does not pay it in advance. Mortgage payments cover interest that is already owed to the lender. “Deferred interest” accumulates when a loan payment is not large enough to cover all the interest due.
Depreciation Decline in value of a house or car due to wear and tear, adverse changes in the neighborhood, or any other reason.
Discount Points Money the borrower can choose to pay a mortgage lender to get a lower interest rate. Each point is equal to one percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).
DNB DNB is the stock symbol for Dun & Bradstreet, which is sometimes used as an abbreviation for the company’s name.
Documentation Most lenders require borrowers to complete a loan application and provide information demonstrating their credit-worthiness – for example, their income, assets and employment. “Documentation” means providing documents that support the information provided in an application -- like W-2s, tax returns and bank statements.
Down Payment The difference between a home’s purchase price and the amount of the mortgage against the property. The down payment must be paid upfront before the home purchase can close.
Down Payment and Fees Money paid to make up the difference between the purchase price and mortgage amount plus the closing cost fees to close the loan.
DUNS Number A DUNS number is a nine-digit identification number issued to a business by the company Dun & Bradstreet.
Earnest Money Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Equal Credit Opportunity Act A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity The difference between the fair market value of an asset (like a home) and the amount of debt against that asset (like a mortgage balance).
Escrow A neutral third party that carries out the instructions of both the buyer and seller in a real estate transaction.
Fair Market Value The amount an article (such as property or an automobile) would sell for on the open market, barring any constraints such as a need to sell or buy quickly. The fair market value for real estate is often determined by examining the range of selling prices for similar homes in the current economic climate.
Fannie Mae Fannie Mae is the larger of two government-sponsored enterprises (GSEs) created by Congress. (The smaller one is Freddie Mac.) It purchases and sells residential mortgages that conform to the guidelines it has established. For this reason, loans bought and sold by Fannie Mae are called “conforming” mortgages. Fannie Mae is also referred to as Federal National Mortgage Association.
Federal Collection Policy Notice Notice to VA home loan borrowers of actions the government can take in the event that they default on their VA-backed home loans. These include but are not limited to confiscating tax refunds and retirement benefits.
Federal Funds Rate The federal funds rate is extremely important to the U.S. economy because it is the interest rate that commercial banks, also called depository institutions, charge to other lending institutions who are taking out short-term loans, usually overnight.
FHA Definition FHA stands for Federal Housing Administration. The FHA is a U.S. government agency that offers insurance to lenders who provide loans to home buyers. Since Congress created the FHA in 1934, it has enabled millions of home buyers to purchase homes when they might not have qualified otherwise. They are a self-funding department, which means not only do they benefit mortgage loan borrowers, but they don't cost American taxpayers money either.
FHA Down Payment An FHA loan requires a 3.5 percent down payment on the purchase price of the loan.
FHA Loan Limit The FHA loan limit is the maximum loan amount you can get for an FHA loan, which varies depending on the area you live in.
FHA Mortgage Insurance FHA mortgage insurance protects lenders from losses in the event that borrowers default on their FHA mortgages. Without FHA insurance coverage, few lenders would be willing to fund home loans with minimal down payments to borrowers with low-to-moderate incomes or past credit problems.
FHA Upfront MIP MIP stands for mortgage insurance premium and is required to close an FHA loan. It is paid as an upfront cost and as an annual premium.
Finance Charge The total cost of credit for a mortgage. This is shown on the Truth-in-Lending disclosure, or TIL. This is a dollar amount and includes all charges associated with a home purchase that would not be incurred if the home buyer paid cash.
Fixed Rate Mortgage A category of mortgage characterized by an interest rate that does not change over the life of the loan.
Foreclosure A legal remedy for non-payment of a mortgage debt. The lender takes and sells the property to cover amounts owed. Any remaining proceeds are returned to the borrower.
Freddie Mac Freddie Mac is the smaller of two government-sponsored enterprises (GSEs) created by Congress. (The larger one is Fannie Mae.) It purchases and sells residential mortgages that conform to the guidelines it has established. For this reason, loans bought and sold by Freddie Mac are called “conforming” mortgages. Freddie Mac is also known as the Federal Home Loan Mortgage Corporation.
Funding Fee Clause Part of the required paperwork when borrowers assume VA home loans. It informs them that there is a .5 point assumption fee.
Good Faith Estimate (GFE) A disclosure that lenders must by law issue to mortgage applicants within three business days of their loan application date. The three-page GFE lists settlement charges and the terms of the mortgage.
Grace Period The amount of time after a payment due date when no interest is charged. Grace periods of 20 to 30 days are common with many credit card issuers. Credit card grace periods only apply if a cardholder’s previous month's balance was paid in full. Grace periods do not generally apply to cash advances.
Guaranteed Business Loans In lending, to “guarantee” something means that a third-party guarantor will assume the debt obligation of a borrower if the borrower defaults on (does not pay back) the loan.
HARP Program The Home Affordable Refinance Program (HARP) was created by the federal government in April of 2009 to allow eligible homeowners with little home equity, no home equity or even negative home equity to refinance to lower mortgage rates. The program is set to expire on December 31, 2015.
Home Equity Home equity is the difference between the market value of a home and any outstanding mortgage balance(s). A homeowner with a $200,000 property and a $150,000 mortgage balance has $50,000 in home equity.
Home Equity Conversion Mortgage (HECM) The most popular reverse mortgage program in the US. It’s administered by HUD and is also referred to as an FHA reverse mortgage. Reverse mortgages allow homeowners 62 and over to convert some of their home equity to cash, but they are not required to repay the loan until they move out, sell the property or die.
Home Equity Line of Credit A home equity line of credit (HELOC) is a type of secondary financing that consists of a revolving line of credit secured by a lien junior to a mortgage.
Home Equity Loan A home equity loan is also called a second mortgage. It allows the homeowner to borrow against home equity (which is the difference between the property value and the mortgage balance(s) against it). The home equity loan delivers a lump sum at closing and is repaid in monthly installments. Most home equity loans have fixed rates, but some are adjustable.
Home Price A home price is either the purchase price or the property's appraised value, whichever is the lower of the two.
Home Purchase Agreement The contract outlining the agreed-upon price and terms for the purchase of a home. Also called an agreement of sale, a purchase contract, or a sale contract.
Home Value This is your estimate of the current value of your property.
HUD U.S. Department of Housing and Urban Development. The Federal Housing Administration (FHA) within HUD insures home mortgage loans made by lenders and sets minimum standards for FHA loans.
In-house Financing In-house financing refers to the practice of banks keeping a mortgage loan they write rather than selling it to a third party such as Fannie Mae or Freddie Mac.
Index The index is a benchmark rate used by lenders to set adjustable rate mortgage (ARM) interest rates. It is determined by market forces and published by a neutral third party. For example, the London Interbank Offered Rate, or LIBOR, is managed by the ICE Benchmark Administration (IBA), and is based on five currencies: U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Swiss franc (CHF). When setting ARM rates, mortgage lenders add the index to a margin, which is defined in the loan’s documents and agreed to by the lender and borrower.
Initial Interest Rate The interest rate that applies on the first day of a loan’s term. It may also be called a start rate, an introductory rate, a promotional rate, or a teaser rate. At some point during the loan’s lifetime, this rate may adjust or reset.
Installment Loan An installment loan is any type of loan that is paid back to the lender within a set period of time, such as five years.
Interest Rate Index The index is a published benchmark rate used by lenders to set adjustable rate mortgage (ARM) interest rates.
Intro Period The intro period, also called the introductory period or initial rate period, is the time from the day an account is opened, when a promotional interest rate or other favorable term applies, until the promotion expires.
Intro Rate A favorable interest rate that applies during a special promotion. The period of time from the day an account is opened until the promotion expires is called the intro period. When the intro period expires, the interest rate may increase.
Invoice Price The automobile manufacturer’s original charge to the dealer.
Jumbo Mortgage A jumbo mortgage is a mortgage with a loan amount larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Currently the limit is set at $417,000 for most areas. Special areas such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands have a higher limit of $625,000. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate; usually .25% to .50% higher than that of a conforming loan.
Lease Fee The lease fee for a vehicle is the monthly lease payment multiplied by the term of the lease.
Lender An individual or company that makes funds available for borrowing. Lenders can specialize in a category of lending, like mortgage, automotive, personal, education, credit cards and others. Banks may choose to offer all categories of borrowing for their customers.
Lender Fees Lender fees are fees charged by Lenders for processing and funding a loan. They can include application fees, attorney fees, recording fees, and more.
Limited Liability Company A limited liability company, commonly called an “LLC,” is a corporate structure in which a company’s shareholders cannot be help personally responsible for the company’s debts or liabilities.
Limited Partnership A limited partnership, or LP, is a type of legal business partnership whereby two or more partners unite to conduct business jointly. In a limited partnership, each partner is only liable for the amount of money that he has invested in the business.
Line of Credit A line of credit is a revolving (re-usable) credit account that allows account-holders to borrow money and repay it any time during the term of the loan. Credit cards are lines of credit and so is overdraft protection for checking accounts. There are also home equity lines of credit (HELOCs) that allow consumers to borrow against their homes, personal lines of credit, which are unsecured.
Liquidation Liquidation occurs when a company goes out of business or becomes bankrupt and sells off its assets in order to pay off creditors and other debts.
Liquidation Value Liquidation value is the total worth of a company’s physical assets when it goes out of business or declares bankruptcy.
Liquidity Liquidity signifies the degree to which a company’s existing assets can be converted to cash to fulfill financial obligations. The faster an asset can be turned into cash, the more liquid it is considered.
List Price The list price is the cost of a vehicle as suggested by its manufacturer.
Loan Agreement A loan agreement is a contract where the lender stipulates terms and conditions required for the borrowers to receive a loan.
Loan Amount The loan amount is the total amount that the borrower promises to pay back.
Loan Definition A loan product created by a lender and offered to borrowers. It has a specific set of features and costs, which must be disclosed to consumers before they can be bound by its terms.
Loan Origination Fee A mortgage lender charge for originating (processing, documenting, administering, underwriting, auditing and funding) a home loan. It can be a flat fee or a percentage of the loan amount.
Loan Servicing Loan servicing is the administration portion of any type of loan from the moment the funds are dispersed until the loan is paid in full.
Loan Terms The contractual obligations of a borrower and lender, as detailed in the loan agreement.
Loan-to-Value Ratio (LTV) The relationship between a property value and the amount of loans against it. LTV is calculated by dividing the loan amount by the property value.
Lock In A mutual commitment between a mortgage lender and borrower to fund a loan at a specific interest rate and cost as long as the mortgage closes before the lock period expires. Also called a rate lock, an interest rate lock, or just simply a lock.
Lock Period The amount of time a lender has agreed to make a loan with a specific interest rate, terms and costs available to a borrower.
Margin One of the components used to calculate the interest rate for an adjustable rate mortgage (ARM). The other is called the index.
Maximum Loan Amount The highest amount a borrower is qualified to borrow. The limit might be dictated by the loan program – for example, FHA home loans have loan limits that can’t be exceeded – or by the borrower’s income, because lenders are required by law to verify that the borrower has the ability to repay a mortgage.
Monthly Debt Include all of you and your co-borrower's monthly debts, including: minimum monthly required credit card payments, car payments, student loans, alimony/child support payments, any house payments (rent or mortgage) other than the new mortgage you are seeking, rental property maintenance, and other personal loans with periodic payments.
Monthly Payment The amount a borrower is required to pay each month until a debt is paid off.
Mortgage A mortgage is a legal agreement between a borrower (sometimes called a “mortgagor”) and a lender (or “mortgagee”). In exchange for advancing money to the borrower, the lender charges interest. The borrower puts up real estate as security (also called “collateral”) for the loan. If the borrower fails to repay the lender according to the terms of the loan (which is called “default”), the lender can foreclose, taking and selling the property to pay off the loan.
Mortgage Broker A mortgage broker helps borrowers obtain mortgage financing from wholesale mortgage lending companies. For their services, brokers are paid a fee by the borrower or a yield spread premium (commission) by the lender.
Mortgage Insurance A policy that protect a mortgage lender if the borrower defaults on (does not repay) a mortgage.
Mortgage Note A mortgage note is a document you sign at the closing of your mortgage that obligates you to repay the mortgage at a specific rate and over a specific period of time. When you sign the mortgage note at closing, you become personally responsible for repaying the mortgage.
MSRP The Manufacturer’s Suggested Retail Price of a new vehicle.
Multiple Listing Service A computer database that compiles information on houses listed for sale in a particular area by participating real estate agents.
Negative Amortization Negative amortization occurs when your monthly payments are not large enough to cover all the interest due on the loan. The unpaid interest is added to the unpaid balance of the loan making your overall balance higher than the prior month rather than lower. The danger of negative amortization is that the buyer ends up owing more than the original amount of the loan.
Net Operating Loss A net operating loss is an accounting term that refers to a period during which a company incurs more expenses than income.
Net Trade In Value The net trade-in value is the amount of money offered to you by a car dealer for your old car, to be applied as a credit toward your purchase of a new vehicle. It will reduce the loan amount and payments of your new car.
No Credit Business Loans Alternative lenders help small businesses without a robust credit history get the cash they need with no credit business loans. Alternative lenders focus on the types of collateral that big banks often overlook, including real estate and outstanding invoices.Alternative lenders help small businesses without a robust credit history get the cash they need with no credit business loans. Alternative lenders focus on the types of collateral that big banks often overlook, including real estate and outstanding invoices.
No-Doc Mortgage An extinct mortgage product that does not require mortgage lenders to document the borrower’s income or assets. No-doc mortgages are illegal today because they violate the requirement that lenders must verify the borrower’s ability to repay before approving a mortgage.
Non-Conforming Loan A loan that doesn’t conform to guidelines established by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Sometimes also referred to as a jumbo loan.
Operating Performance Ratio A company’s operating performance ratio is figured by dividing operating expenses by net sales. It is intended to illustrate the efficiency of the company’s management.
Owner Financing A home loan provided to a home buyer by the seller of the property.
Owner’s Equity Owner’s equity is the business capital hypothetically available for distribution to shareholders.
Partnership A partnership is a legally binding business agreement wherein two or more individuals share in the operation and management of the business.
Personal Loan A personal loan has higher interest rates than secured loans like a home-equity loan, but you are not required to put up any collateral to ensure repayment.
Piggyback Loan Also called a “purchase money second mortgage,” a piggyback loan is used by homebuyers with less than 20 percent down to avoid paying for private mortgage insurance (PMI).
PITI This stands for principal, interest, taxes and insurance. For most borrowers, PITI is the entire mortgage payment.
Points A point is equal to one percent of a mortgage loan amount. Loan fees may be quoted in points or in flat dollar amounts. “Discount points” are different. They are paid by borrowers who wish to get a lower than market mortgage rate.
Pre-Approved Loan A pre-approved loan is issued by a lender before the borrower purchases a vehicle, and may give the borrower extra leverage with the dealer.
Pre-Approved Mortgage A pre-approved mortgage tells you exactly how much money the lender will let you borrow.
Prepaid Items Prepaid items are charges that the lender requires you to pay at settlement, such as accrued interest.
Prepaids Prepaids are paid by a homebuyer at closing and put into an escrow account to cover the initial costs of expenses, such as private mortgage insurance, hazard insurance, taxes and special assessments.
Prepayment Paying some or all of a loan ahead of schedule. Most mortgage loan programs allow prepayment. Prepaying a mortgage can reduce the amount of mortgage interest paid over the life of the loan and can eliminate the loan faster.
Prepayment Penalty An extra payment due the lender if the mortgage is repaid ahead of schedule. Due to recent mortgage reforms, prepayment penalties have been largely disallowed.
Prepayment Premium A prepayment premium is money a lender charges a borrower for repaying a debt early. Not all states allow the premiums.
Prequalification A non-binding process in which prospective borrowers provide preliminary information concerning income, debts, assets and credit to mortgage lenders. The lenders perform some calculations and estimate the size of home purchase they will likely approve
Prime Rate A commonly used short-term interest rate in the US banking system. It’s the benchmark rate lenders use to set rates for their most credit-worthy customers. The best customers may be granted loans at rates below Prime.
Principal The balance on a loan. Monthly interest due is calculated by multiplying the principal balance by the monthly interest rate. When a monthly payment exceeds the interest due, the excess is applied to the principal balance, which reduces it.
Private Mortgage Insurance Private mortgage insurance, or PMI, allows you to buy a home even if you don’t have a 20 percent down payment.
Processing Fee Clause A section in the paperwork of a VA home loan that advises borrowers there may be a “reasonable” processing fee charged if a home buyer assumes the VA mortgage.
Profit and Loss Statement A profit and loss statement, also known as a P&L or income statement, is a financial document that summarizes the revenues, costs, and expenses incurred by a business during a period of time.
Proprietorship A proprietorship, also often called a “sole proprietorship,” is a business structure wherein there is no legal distinction between the owner and the business.
Public Company A public company is a business whose shares are traded on a stock exchange.
Purchase Option An option to purchase a car or home that is being leased. The option might apply during the entire lease period or at the end of the lease period.
Qualification The preliminary assessment of a prospective borrower’s finances to determine if he or she meets the requirements for loan approval.
Qualification Ratios Qualification ratios are limits set by lenders to state the maximum housing expense to income ratio, and total debt to income ratio in order a borrower can have in order to qualify for a loan.
Quitclaim Deed A public filing that relinquishes whatever interest the maker of the deed may have in the particular piece of real estate.
Rate The percentage used to calculate the interest charge for a loan. The rate and loan amount determine the interest expense and the loan payment. Also referred to as the interest rate, stated rate or loan rate.
Rate and Term Refinancing A mortgage refinance that replaces the existing mortgage with a new one but does not disburse cash to the borrower. Rate and term refinancing is undertaken simply to improve on the terms of the old loan – reducing the interest rate is a popular goal.
Rate/Point Options The pricing structure for a mortgage. A point is equal to one percent of the mortgage amount. In general, the lower the mortgage rate, the higher the cost (the more points paid). It’s up to the borrower to choose the option that will save him or her the most money.
Real Estate Broker A licensed intermediary who works with property sellers and buyers to arrange a real estate transaction.
Realtor A member of the National Association of Realtors, the largest industry trade association in the US. Realtors are residential and commercial agents and real estate brokers.
Rebate An incentive paid by a car manufacturer as a way to increase sales of products.
Refinance Refinancing means replacing one loan with a new, better loan. Improving the terms of a loan can mean obtaining a lower interest rate, a lower monthly payment, replacing an adjustable or variable rate loan with a fixed-rate loan or increasing the size of the loan and taking the difference in cash.
Remaining Interest The remaining interest on a loan is the interest that you still have left to pay, assuming you continue making your minimum monthly payment
Required Cash This the amount a mortgage borrower must bring in to close a home loan.
Retained Earnings Retained earnings, also known as retention ratio or retained surplus, is a business term referring to the net earnings retained by a company to reinvest in its business or to pay debt.
Return on Investment (ROI) Return on investment (ROI) measures the gains received from an investment compared to that investment’s cost. A high ROI indicates favorable benefit to the investor.
Reverse Mortgage A reverse mortgage is a type of loan available to homeowners age 62 and older. Instead of purchasing a home and taking out a traditional mortgage, a reverse mortgage allows homeowners to convert the equity in their home into cash.
Revolving Debt Revolving debt is the kind of debt that credit cards offer and is usually an easy way to get credit. It can be a useful tool when used with discipline.
S-Corporation An S-corporation is a small business that pays no income tax. Instead, all of the income or losses for the business are passed through to its shareholders, who must report them on their personal tax returns.
Sales Tax Percentage Sales tax percentage is the percentage rate applied to the sale of goods or services, to be paid in addition to the purchase price to contribute to the operation of state, city, or local government functions.
SBA Backed Lender An SBA backed lender is a bank or other lender that extends loans to small businesses with the principle guaranteed up to 80 percent by the U.S. Small Business Administration (SBA).
SBA Backed Loan An SBA backed loan is a loan extended to a small business by a bank or other lender with up to 80 percent of the principle guaranteed by the U.S. Small Business Administration.
Second Home A second home is a one-unit property owned by an individual, occupied by the borrower for some portion of the year, and not subject to any timesharing ownership arrangement.
Second Trust Loan A second trust loan is an alternative to private mortgage insurance.
Secured Debt A secured debt is money borrowed that is guaranteed (or secured) by the borrower’s funds or assets and held by the lender in an interest-bearing account.
Secured Line of Credit A secured line of credit is a credit account extended to a business by a financial institution wherein the creditor has established a lien against the assets of the business so that it has the right to seize and liquidate those assets should the business default on payments.
Settlement Settlement is the meeting between a home buyer, seller and lender where the property and funds legally change hands.
Settlement Costs Settlement costs include a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement.
Simple Interest Simple interest is paid on the principal amount borrowed and is not compounded.
Small Business Development Center Small business owners can visit a local Small Business Development Center for access to free or low-cost business training and consulting services.
Sole Proprietorship A sole proprietorship is a business structure wherein there is no legal distinction between the owner and the business.
Sticker Price Sticker price is another term for manufacturer's suggested retail price or list price.
Student Loan Grace Period A defined fixed period allowed by the government between graduating and finding a job where students do not have to pay their student loans.
Subprime Borrower A subprime borrower is an individual with a less-than-perfect credit rating.
Subprime Loan A subprime loan is a loan offered to people who do not qualify for a conventional loan, either because of low income, a high loan-to-value ratio, or poor credit history.
Subprime Mortgage A subprime mortgage is a mortgage granted to a subprime borrower (an individual with less-than-perfect credit).
Taxes & Fees This is a total of Property taxes, Homeowners Insurance, HOA dues, PMI paid per month
Term Term refers to the period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.
Title A title is a document that gives evidence of an individual's ownership of property.
Title Insurance Title insurance is a policy, usually issued by a Title Insurance company, which guarantees that an owner has title to a property and insures against errors in the title search.
Total Down Payment The total down payment is the amount of money that you're able to put down on your purchase.
Total Interest This is the total paid towards interest over the life of the loan based on the calculator inputs and assumptions
Total Loan Amount This is the principal amount that was borrowed and is calculated as the difference between Home Value and Down Payment.
Total of All Payments This is the sum of all payments made over the life of the loan and includes payments towards principal, interest, property taxes, home owners insurance, HOA dues and PMI.
Underwater Mortgage An underwater mortgage is where the market value of a home today is lower than the current balance owed on its mortgage. In other words, selling the property won't generate enough money to pay off that mortgage and will leave a shortfall. Some people describe this as having "negative equity."
Unsecured Debt Unsecured debt is debt without collateral to back the loan in case of default.
Upside Down Car Loan An upside down car loan is a situation in which you owe more on your car than it's worth.
Upside-Down Loan A loan secured by a collateral that has depreciated in market value and is worth less than the balance owed. For example, if you owe $5,000 on a car that is only worth $4,000, the loan is upside down.
VA Amendatory Clause This is added to your purchase agreement, must be signed by you and your seller....
VA Funding Fee VA loans require no down payment from the borrower. To help offset the costs to the taxpayers, the borrower must pay a VA funding fee.
VA Loan A VA loan is made by an approved lender and guaranteed by the Department of Veterans Affairs.
VA Loan Limit The VA loan limit is the maximum amount in which a qualified Veteran can borrow without making a down payment.
Variable Rate Mortgage A variable rate mortgage is one in which the interest rate is adjusted periodically based on an index.
Vehicle Appraisal A vehicle appraisal determines how much money your car is currently worth.
Walk-Through A walk-through is the final inspection done by a buyer, usually just before closing, to ensure that the property is as expected and any agreed-upon repairs have been made.
What is a Debt Consolidation Loan? A single loan that replaces several other loans, making it easier to manage the debt. The new loan should have more favorable terms than the accounts it replaces – a lower interest rate, more manageable payment, or both. The debt consolidation loan can be a balance transfer credit card, a personal loan or a home equity loan.
What is Debt-to-Income Ratio? Debt-to-income ratio, also known as DTI, is the relationship between a consumer’s monthly debt payments and income. This may be referred to as DTI, back-end ratio or bottom ratio. It is calculated by adding the monthly payments of accounts like credit cards, auto loans, student loans and housing (rent or mortgage) and dividing that by the gross (before tax) monthly income. It does not include living expenses like utilities or food.
What is Debt? Money that is owed to an individual or institution. Credit card balances, mortgages, auto loans and personal loans are all examples of debt.
Working Capital Working capital is the result of a business's measurable assets that are available for its day-to-day-operation. It is often a good indication of how a company is being managed as the amount of capital that is available provides a glimpse into the financial health of the business.
Working Capital Ratio Working capital ratio is calculated by dividing a business’ current assets by current liabilities.