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- Annual percentage rate (APR): Cost of borrowing money, expressed
as an annual percentage.
- Balloon payment: Final payment of adebt that is much larger than the payments preceding it.
- Closed-end credit: Loans of a fixed amount of money that is advanced
at the beginning of the loan term. These loans have set repayment schedules,
such as $200 per month for 60 months.
- Closing costs: Expenses involved in transferring real estate or in
acquiring a mortgage, such as bank fees, lawyer's fees, survey charges,
title searches, title insurance and fees to file deeds.
- Collateral: An asset, such as a house or car, pledged to a lender until
a loan is paid.
- Deed of trust: A document that gives a lender a security interest in
your home equal to the amount you borrowed. (See also "Power of sale.")
- Default: When a borrower fails to meet the repayment terms of a mortgage
or other loan. In this case, a borrower receives a "notice of default"
from the lender.
- Equity: The estimated value of your home, minus the amount you still
owe.
- Foreclosure: The process of selling a home whose owner has missed mortgage
payments or failed to pay a contractor's lien. For three consecutive weeks
a "notice of sale" must be published in a local newspaper and
posted in a public place, usually the local courthouse.
- Grant deed: A document used to transfer ownership of a property to another
person.
- Home equity loan: A loan guaranteed by the homeowner's equity (usually
the estimated value of the home minus the amount still owed to a bank
or other lender). Most home equity loans are second mortgages.
- Interest: The cost of borrowing money, usually expressed as an annual
percentage rate (APR).
- Late charge: An additional fee that a borrower must pay if a monthly
loan payment is made after the due date.
- Lien contract: An agreement, usually with a home improvement contractor,
which gives the contractor a security interest in the home and may give
the contractor the right to force a sale if the final bill is not paid.
- Mechanic's lien: In many states, a contractor has the right to make
a claim against a property if the contractor is not paid in full. If the
property is sold, the contractor is paid from the proceeds.
- Negative amortization: When the amount borrowed for a mortgage or other
loan increases because the monthly mortgage payments are not large enough
to pay all of the interest due.
- Open-ended credit: A loanor line of creditin which all of the borrowed
funds are not advanced at the beginning of the credit transaction. The
borrower may draw advances up to the credit limit when money is needed,
and payments are based on the current outstanding balance.
- Point(s): Upfront fees paid at the closing of a loan which often slightly
reduce the interest rate the borrower will pay. A point is one percentage
point (1%) of the amount borrowed, two points is 2%, etc.
- Prepayment: When the principal (original amount borrowed) on a mortgage
or home equity loan is paid off in full, such as upon sale of the property
or refinancing, or by paying more each month than agreed upon.
- Prepayment penalty: A provision in a mortgage or home equity loan contract
allowing the borrower to be charged extra money for paying the loan off
early or refinancing.
- Principal: The face value of a debt, or original amount borrowed, separate
from any interest owed.
- Promissory note: Written promise signed by a borrower, outlining the
terms usually the principal, interest and repayment schedule under which
the loan is being made.
- Power of sale: A legal agreement, usually part of a deed of trust,
which states that if a borrower does not make the agreed-upon payments,
the lender can foreclose on the property that secures the loan and sell
it at public auction in order to recover any losses.
- Quit claim deed: A document that transfers all or part of an interest
in real property to another person.
- Reverse mortgage: A form of home equity loan which allows homeowners,
usually seniors, to borrow against the equity in their homes without having
to repay the loan until the owners sell the property, move or die.
- Reverse redlining: It is called "redlining" when lenders
and insurance companies avoid doing business in low income and minority
communities. Reverse redlining is when unscrupulous lenders purposely
take advantage of unsophisticated or desperate residents of these communities
by pushing high-cost loans.
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