Loans glossary
Here is a complete word list of loan related terms:
Adjustable Rate Loan - It is a loan in which the rate of interest keeps changing over the term of the loan.
Amortize - To pay off a debt in installments.
Application Fee - The fee charged for the loan application by the lender or broker.
Appraisal-Estimation of the value of the real estate being used as security to get loan.
Appraiser - Person who does the appraisal.
Annual Percentage Rate - Cost of the credit inclusive of the interest rate and the prepaid finance charges.
Assets - Real or personal property which can be used for the payment of debt.
Bad Debt - Debt that the creditor is unable to collect from the borrower.
Balloon Payment - Payment owed at the end of a loan term to cover the amount still owed after monthly payments.
Borrower - Person who borrows a sum of money on loan from a lender at a specified rate of interest for a given amount of time.
Bridge Loan - Short-term loan which provides money temporarily till a permanent loan is not found.
Broker Agreement - Contract between borrower and mortgage broker which states the terms of agreement and the compensation to be paid to the broker.
Broker Compensation - Amount that borrower has to pay the broker for finding him a loan. This can also include an amount that the lender pays to the broker.
Cash Flow Financing - Short-term loan that provides additional cash to borrower to cover cash shortfalls in anticipation of payments that borrower will receive in the near future.
Cash-out Refinancing Loan - Loan which provides extra cash to borrower by refinancing a property previously mortgaged.
Closing Costs - Amount that borrower has to pay when closing the loan.
Credit Report - Report made by a credit reporting agency which shows borrower?s credit history, payment times on previous mortgages, credit cards, rent, utilities and other debts.
Credit Score - Number calculated using credit reports and other information that indicates to the lender how likely you are to repay a loan. This score primarily determines whether the borrower gets the loan or not and on what terms.
Collateral - Assets pledged in lieu of borrowing a loan.
Current Asset - Assets that will turn into cash within a year.
Current Liability - Liability to be paid within a year.
Current Ratio - Ratio of current assets and current liabilities which indicate liquidity.
Debt - Amount owed in lieu of money borrowed.
Debt Service-Monthly, quarterly or annual payment owed to meet the debt agreement.
Debt Service Reserve - Money kept aside by borrower to repay debt in case he can not generate enough money by other means.
Deed of Trust - Document used instead of a mortgage document to secure a loan.
Default - Failure of borrower to pay a mortgage installment.
Document Preparation Fee - Money charged for preparing mortgage loan documents.
Equity - Value of the property which is greater than the debt held on it.
Fees - Money paid up front to get a mortgage loan.
Finance Companies - Companies that give loans, generally at higher rates than banks.
Fixed Rate Loan - Loan where the interest rate remains constant during the loan term.
Foreclosure - Legal procedure by which the lender forces sale of borrower?s mortgaged property to get repayment of his loan.
Fully Amortizing - Loan in which balance owed by borrower is zero at the end of the loan term if all monthly payments are made as per schedule.
Good Faith Estimate - Estimation of fees borrower has to pay to get the loan.
Government Recording Fees and Taxes - Fees and taxes paid to the local government where mortgage documents are filed.
Guaranteed Loan - A promise to pay the debt or perform an obligation in case the borrower fails to pay the debt.
Home Equity Loan - Loan taken by homeowner in lieu of equity in the home.
Homeowner's Hazard Insurance - Insurance which protects lender in case borrower?s home in damaged. It may also provide protection to borrower.
Installment Note - Document providing details of payments to be made in monthly, quarterly or annual installments.
Interest Rate - Percentage of loan to be paid as interest to lender.
Introductory Rate - Lower interest rate at start of loan term for a short period of time which will be increased to actual interest rate at end of the introductory period.
Interim Financing - Short-term loan which provides funds temporarily till a permanent loan is not found.
Jumbo Loans - Loans whose size and amount exceeds the Fannie Mae guidelines.
Late Charge - Penalty charged in case loan payment is not made on time.
Lender - Company or person that gives the loan to the borrower.
Lender Paid Compensation to Broker - Money paid by lender to mortgage broker for obtaining the loan from borrower. It is also called the Yield Spread Premium.
Line of Credit - Bank agreement according to which a company can borrow money till a specified limit at any given point of time.
Loan Agreement - Legal contract between lender and borrower which specifies the details of the loans and also the rights and obligations of both parties regarding the loan.
Loan Approval / Commitment - Agreement made my lender to give the borrower loan on specified terms of interest rate, fees and charges.
Loan Term - Amount of time for which lender gives the loan to the borrower.
Mortgage - Agreement by which borrower provides his property as security in lieu of the loan that he is getting from the lender. The lender can sell the mortgaged property in case the borrower fails to return the loan is the specified time.
Mortgage Broker - Person or company that obtains a mortgage loan for the borrower from a lender.
Mortgage Insurance - Insurance required when loan is greater than 80% of the value of the mortgaged property. The insurance protects the lender in case the borrower fails to pay back the loan.
Notice of Right to Cancel - As per American laws, lender can cancel a mortgage loan usually within three days of signing the loan agreement by giving in writing to the borrower his right to do so.
Open-End Loan - Loan that allows borrower to take money from time to time till a credit limit.
Payment Schedule - Document stating amount of the first loan payment, amount and number of the regular installment payments and amount of the final payment, and the dates when these payments are due.
Points - Fee charged by lender as additional compensation for giving the loan to the borrower.
Prepayment Penalty - Penalty imposed if borrower pays off loan before loan term ends.
Prime Loan - Loans with lower interest rates given to borrower?s with better credit history.
Promissory Note - Legal document in which the borrower promises to pay back the loan and which also specifies the terms and conditions with regards the repayment of the loan.
Purchase Money Loan / Mortgage - Loan for purchasing a house.
Rate Lock - Agreement between borrower and lender which specifies that if the loan is paid within a certain period of time the interest rate on the loan will be locked at the specified rate.
Recording Fees - Fees charged by local government to record loan documents.
Refinance - Repayment of an existing mortgage loans by getting a new mortgage loan.
Secondary Mortgage Loan - Mortgage loan in addition to another mortgage loan that already exists on the property.
Sub Prime Loans - Loans with higher interest rates than prime loans which are usually offered to borrowers with poor credit scores.
Senior Debt - Debt that must be paid before other debts owed.
Subordinated Debt - Debt which is paid only after senior debt is paid.
Term - Amount of time for which loan is given.
Underwriting Fee - Fee that the lender charges the borrower to evaluate whether the borrower qualifies for the mortgage loan.
Yield Spread Premium - Amount paid by lender to mortgage broker in connection with borrower's mortgage transaction.
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