Loan Glossary

The content provided in this guide is for informational purposes only and is not intended as legal, financial, or professional advice. Readers are advised to seek the services of qualified professionals to receive personalized advice tailored to their specific situation and needs. By continuing to read this guide, you agree to not hold the author, publisher, or any of their affiliates liable for any decisions made based on the information provided herein.
READ MORE

Welcome to our Loan Glossary—your one-stop destination for clear and concise definitions of key loan terms.

Whether you’re a first-time borrower or looking to brush up on financial lingo, our guide is designed to enhance your understanding and confidence in the world of lending. Explore simple explanations of everything from ‘APR’ to ‘Equity’ and make informed decisions with ease.

A

Amortization: The process of paying off a debt over time through regular payments, where part goes towards the loan amount and part towards the interest.

Annual Percentage Rate (APR): The annual rate charged for borrowing or earned through an investment, which represents the actual yearly cost of funds over the term of a loan, including fees.

Annuity: A fixed sum of money paid to someone each year, typically for the rest of their life, but in the context of loans, it refers to the repayment of the loan in equal installments.

Application Fee: A fee that a lender charges to process a new loan application, which is meant to cover the costs of processing the loan.

Appraisal: A professional assessment of a property’s value, which is used by lenders to determine the loan-to-value ratio.

Asset: Anything of value that can be owned or controlled to produce value and that is held to have positive economic value is considered an asset.

Assignment: The transfer of an interest in a property or a right to another party.

Assumable Mortgage: A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.

Automated Clearing House (ACH): An electronic network for financial transactions in the United States that processes large volumes of credit and debit transactions in batches.

Adjustable-Rate Mortgage (ARM): A mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.

Acceleration Clause: A contract provision that allows a lender to require a borrower to repay all or part of an outstanding loan if certain requirements are not met.

Accrued Interest: The interest that accumulates on a loan between payment periods but has not yet been paid.

Acknowledgment: A formal declaration before an authorized official by the person who signs a document, that it is his or her own act.

Acquisition Cost: The cost of securing a property, including the purchase price, closing costs, and any other expenses incurred in the process.

Actuarial Method: A technique used by lenders to allocate payments between the principal and interest over the life of the loan.

Adverse Credit: A credit history that contains multiple problems, including late payments, bankruptcy, or default.

Affordability Analysis: An analysis of a buyer’s ability to afford the purchase of a home, which takes into account income, liabilities, available funds, and the type of mortgage you plan to use, among other factors.

Agency Closing: A closing conducted by a third party, such as an escrow agent, where the lender is not directly involved in the completion of the transaction.

Alienation Clause: A clause that allows a lender to demand full repayment of a loan if the borrower sells the property that serves as security for the loan.

Alternative Credit: Non-traditional credit history considered for a loan application, like utility and rent payments.

Amortization Schedule: A complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term.

Amortization Term: The total time period over which the loan is to be fully paid off by the borrower, according to the agreed-upon payment schedule.

Annual Fee: A yearly fee charged by credit providers for the privilege of using a line of credit or credit card.

Application: The initial step in the official loan process, during which a borrower submits their financial information to a lender for the purpose of obtaining a loan estimate.

Applicant: An individual or business applying for a loan.

Appreciation: An increase in the value of an asset over time.

Approval: The formal agreement by a lender to extend credit under specified terms after reviewing the borrower’s creditworthiness.

Assessed Value: The value assigned to a property by a public tax assessor for the purpose of taxation.

Asset-Based Lending: Loans based on the value of the assets offered as collateral rather than the creditworthiness of the borrower.

Assumption Fee: A fee paid to a lender when an assumption takes place, which is when a buyer takes over the seller’s mortgage.

B

Balance: The amount of money owed on a loan at any given time after taking into account all payments made.

Bankruptcy: A legal proceeding involving a person or business that is unable to repay their outstanding debts. Bankruptcy can impact the ability to receive a loan.

Basis Point: One basis point is equal to 1/100th of 1%, used in the context of loans to describe the percentage change in interest rates or other financial percentages.

Bearer: The individual in possession of an instrument, such as a check, that is payable to bearer or to cash.

Billing Statement: A monthly statement detailing the current status of your loan, including the loan balance, and payments received.

Blanket Mortgage: A mortgage covering more than one piece of real estate.

Borrower: An individual, company, or entity that receives funds from a lender with the agreement to repay the loan according to the terms of the loan contract.

Bridge Loan: A short-term loan used until a person or company secures permanent financing or removes an existing obligation.

Broker: An individual or firm that acts as an intermediary, bringing borrowers and lenders together for the purpose of loan origination.

Budget Loan: A loan that incorporates both principal and interest, with each payment contributing to both aspects of the loan.

Building Society: A financial institution owned by its members as a mutual organization offering banking and related financial services, especially mortgage lending.

Bullet Loan: A loan where a large “bullet” payment is paid back at the end of the loan term.

Business Loan: A loan specifically intended for business purposes.

Buy-Down: An arrangement whereby the property seller or developer or another interested party increases the buyer’s ability to afford a mortgage by paying down the interest rate for the first few years of the loan.

Buyer’s Market: A situation in the housing market where buyers have a wide choice of properties and can negotiate lower prices.

Balloon Mortgage: A type of mortgage that has a large, lump-sum payment due at the end of a shorter-term.

Balloon Payment: The lump sum paid at the end of a balloon mortgage.

Bank Statement Loan: A loan where the lender uses bank statements to verify an applicant’s income instead of traditional income documentation.

Banking Day: Any business day during which an office of a bank is open to the public for substantially all of its banking functions.

Basis Rate: The interest rate before the adjustment for loan-to-value ratio, property type, loan amount, or down payment.

Beneficiary: The person who receives the benefit from a trust, will, or life insurance policy, and in the context of a loan, the lender might be referred to as the beneficiary.

Bi-weekly Payment Loan: A loan where the borrower makes payments every two weeks instead of monthly.

Bill Consolidation Loan: A loan that combines several debts into one loan with a single payment.

Blanket Loan: A loan or mortgage that covers more than one property of the borrower.

Breach: A violation of any legal obligation or part of a contract.

Bundled Services: Multiple services that are offered together by a lender or broker, possibly at a discount.

Business Credit: Credit that is issued to a business rather than an individual consumer.

Business Credit Report: A report providing financial information about a business that is used by lenders to assess creditworthiness for business loans.

Business Debt Consolidation Loan: A loan that allows a business to combine multiple debts into one loan with one monthly payment.

Business Line of Credit: An agreement between a commercial bank and a business specifying the amount of unsecured short-term borrowing the bank will allow the business to have.

C

Cap: A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

Capital: Wealth in the form of money or assets, taken as a sign of the financial strength of an individual, organization, or nation, and presumed to be available for development or investment.

Capital and Interest Mortgage: A type of mortgage where the monthly repayments cover both the interest on the loan and repayment of the capital.

Cash Advance: A loan that a credit card holder can use to withdraw cash against their credit limit.

Cash-Out Refinance: A mortgage refinancing transaction where the new mortgage amount is greater than the existing mortgage amount, plus loan settlement costs.

Certificate of Deposit (CD): A savings certificate with a fixed maturity date and specified fixed interest rate that can be issued in any denomination aside from minimum investment requirements.

Certificate of Title: A statement provided by an abstract company, title company, or attorney stating that the title of real estate is legally held by the current owner.

Charge-Off: A declaration by a creditor that an amount of debt is unlikely to be collected, which usually occurs when a consumer becomes severely delinquent on a debt.

Closing: The final step in executing a real estate transaction, the closing date is when the sale is completed; the buyer signs the mortgage documents, and the closing costs are paid.

Closing Costs: Fees and expenses, over and above the price of the property, incurred by the buyer and seller in the transfer of ownership of real estate property.

Co-Borrower: Any additional borrower(s) whose name(s) appear on loan documents and whose income and credit history are used to qualify for the loan.

Collateral: An asset that a borrower offers to a lender to secure a loan.

Collection: The attempt by a lender to collect on a past-due debt from a borrower.

Commercial Loan: A debt-based funding arrangement that a business can set up with a financial institution.

Commitment: A pledge or promise; a commitment letter is a formal offer by a lender making explicit the terms under which it agrees to lend money to a borrower over a certain period.

Compound Interest: Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Conforming Loan: A mortgage that meets the purchasing criteria of Fannie Mae or Freddie Mac.

Consolidation Loan: A loan that combines multiple loans into a single loan.

Construction Loan: A short-term loan used to finance the building of a home or another real estate project.

Consumer Credit: Credit extended to individuals in order to buy goods and services, often in the form of a credit card.

Contingency: A condition that must be met for a contract or a commitment to remain binding.

Contract: An agreement between two or more parties, especially one that is written and enforceable by law.

Conventional Loan: A mortgage loan not insured by any government program, conventional loans are the most common type of mortgage.

Conversion Clause: A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified times after loan origination.

Co-Signer: A person who signs a loan agreement with the borrower and agrees to repay the loan if the borrower does not.

Cost of Funds Index (COFI): An index that is used to determine interest rate changes for certain adjustable-rate mortgages (ARMs).

Credit: The granting of a loan and the creation of debt; any form of deferred payment.

Credit Bureau: An agency that collects and researches individual credit information and sells it for a fee to creditors so they can make a decision on granting loans.

Credit Counseling: A service that helps consumers manage their debt load and credit more wisely.

Credit Limit: The maximum amount of credit that a financial institution extends to a client.

Credit Line: Also known as a line of credit (LOC), an arrangement between a financial institution, usually a bank, and a client that establishes a maximum loan balance that the lender permits the borrower to access or maintain.

Credit Report: A detailed report of an individual’s credit history prepared by a credit bureau.

Credit Score: A number assigned to a person that indicates to lenders their capacity to repay a loan.

Creditor: An entity (bank, finance company, credit union, etc.) that extends credit by giving another entity permission to borrow money if it is paid back at a later date.

Creditworthiness: A valuation performed by lenders that determines the possibility a borrower may default on his debt obligations.

Curtailment: An extra payment that is made to reduce the principal balance of a loan.

Collateralized Loan Obligation (CLO): A security backed by a pool of debt, often low-rated corporate loans.

Consumer Loan: A loan given to consumers to finance specific types of expenditures.

D

Debt: Money owed by one party to another.

Debt Consolidation: The act of combining several loans or liabilities into one loan.

Debt Financing: Raising funds through borrowing.

Debt-to-Income Ratio (DTI): A personal finance measure that compares the amount of debt you have to your overall income.

Debtor: An individual or entity that owes money.

Deed: A legal document that grants ownership of a property to a new owner.

Deed-in-Lieu of Foreclosure: A deed instrument in which a borrower conveys all interest in a real property to the lender to satisfy a loan that is in default and avoid foreclosure proceedings.

Deed of Trust: A document that embodies the agreement between a lender and a borrower to transfer an interest in the borrower’s land to a neutral third party, a trustee, to secure the payment of a debt by the borrower.

Default: Failure to meet the legal obligations (or conditions) of a loan.

Deferred Interest: Interest that accumulates on a loan and is added to the principal balance if not paid by the borrower during a specified period.

Delinquency: Failure to make payments on time. This can lead to foreclosure.

Deposit: A sum of money placed or kept in a bank account, usually to gain interest.

Depreciation: The reduction in the value of an asset with the passage of time, due in particular to wear and tear.

Discount Point: A type of prepaid interest or fee that mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments.

Discount Rate: The interest rate that the Federal Reserve charges banks for short-term loans.

Down Payment: An upfront payment made by the buyer of a house or car, or for another purchase, typically represented as a percentage of the total purchase price.

Due-on-Sale Clause: A provision in a mortgage contract requiring the borrower to pay the entire outstanding balance upon sale or transfer of the property.

Debt Service: The cash that is required for a particular time period to cover the repayment of interest and principal on a debt.

Debt Settlement: A negotiation agreement with a lender to pay back a percentage of a loan balance, while the remainder of the debt is forgiven.

Debt Snowball: A debt reduction strategy, whereby one who owes on more than one account pays off the accounts starting with the smallest balances first, while paying the minimum payment on larger debts.

Debenture: A medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.

Declaration of Default: An official statement that a borrower has not met their debt obligations.

Draw Period: The time period during which a borrower can access funds in a line of credit.

Due Diligence: The process of investigation and evaluation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts.

Debt Management Plan (DMP): A structured repayment plan set up by a designated third party, helping a debtor with repayment of his or her debt.

Debt Ratio: A financial ratio that measures the extent of a company’s or individual’s leverage.

Direct Consolidation Loan: A government-sponsored debt consolidation loan offered through the Direct Loan Program to help borrowers with federal student loans simplify their loan repayments.

Disclosure: The act of releasing all relevant information on a company that may influence an investment decision.

Disbursement: The act of paying out or disbursing money, such as the issuer of a check or promissory note releasing funds.

Distressed Debt: Debt of companies that have declared bankruptcy or have a high likelihood of doing so.

Dodd-Frank Act: A comprehensive set of financial regulations passed in the United States in 2010, aimed at preventing the recurrence of events that caused the 2008 financial crisis.

Due Date: The date on which a payment is due.

Default Risk: The likelihood that a borrower will fail to pay back a loan.

Documentation Preparation Fee: A fee charged by a lender to prepare the necessary documents for the loan transaction.

E

Easement: A right to cross or otherwise use someone else’s land for a specified purpose.

Effective Interest Rate: The actual cost of borrowing, including additional fees and costs, expressed as a percentage.

Electronic Funds Transfer (EFT): The transfer of funds between accounts by electronic means rather than through a physical exchange of cash or checks.

Eligibility: Criteria that borrowers must meet to qualify for a loan.

Encumbrance: A claim against a property, such as a mortgage, charge, or lien.

Endorsement: The act of signing one’s name on the back of a check or other financial instrument to legally transfer its ownership.

Equal Credit Opportunity Act (ECOA): A United States law that makes it illegal for creditors to discriminate against applicants on the basis of race, color, religion, national origin, sex, marital status, age, or because they receive public assistance.

Equity: The difference between the market value of a property and the amount still owed on its mortgage.

Equity Loan: A loan in which the borrower uses the equity of their home as collateral.

Escrow: An account held by a third party on behalf of two parties in a transaction; also, a process in which the funds or assets are held by a third party until the conditions of a contract are met.

Escrow Account: An account where funds are held in trust while two or more parties complete a transaction.

Escrow Analysis: The periodic examination of escrow accounts by a mortgage company to ensure that the correct amount of money for anticipated expenditures is being collected.

Escrow Fees: Fees charged by the company that handles the transfer of funds between parties during a transaction, typically a sale of real estate.

Estate: The total of all the real estate and personal property owned by an individual at the time of their death.

Estimated Closing Costs: An estimate of the fees due at closing for a mortgage loan that must be paid by the buyer or seller.

Examination of Title: The report on the title of a property from the public records or an abstract of the title.

Exclusive Listing: A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Executor: A person or institution appointed by a testator to carry out the terms of their will.

Experian: One of the three major credit reporting agencies in the United States.

Extension: An agreement to extend the due date for the repayment of a loan.

Equity Line of Credit: A credit line using the equity in the borrower’s home as collateral.

Early Repayment Penalty: A fee that is charged to a borrower who pays off a loan before it is due.

Earnest Money: A deposit made to a seller showing the buyer’s good faith in a transaction.

Economic Hardship Deferment: A deferment of loan payments granted to borrowers who are experiencing financial hardship.

Education Loan: A type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books, and living expenses.

Effective Annual Rate (EAR): The interest rate on a loan or financial product restated from the nominal interest rate as an interest rate with annual compound interest payable in arrears.

Encroachment: Intrusion on a person’s territory, rights, etc., such as a building that extends over the boundary line of a property.

Environmental Impact Statement (EIS): A document required by the National Environmental Policy Act for certain actions “significantly affecting the quality of the human environment”.

Equitable Mortgage: A type of mortgage recognized by a court where a mortgage is established by way of a court order based on the lender’s claim to the property.

Equity Release: The process of freeing up the equity in a property without having to move.

F

Fair Credit Billing Act (FCBA): A United States federal law designed to protect consumers from unfair credit billing practices.

Fair Credit Reporting Act (FCRA): U.S. legislation enacted to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies.

Fair Debt Collection Practices Act (FDCPA): A U.S. statute added to protect consumers from abusive debt collection practices.

Fair Market Value: The price a willing buyer will pay and a willing seller will accept for real or personal property in an open and competitive market.

Fannie Mae: A government-sponsored enterprise that is one of the largest backers of residential mortgages in the United States.

FHA Loan: A mortgage that is insured by the Federal Housing Administration, designed for lower-income borrowers.

FHA Mortgage Insurance: A policy that protects lenders against losses that result from defaults on home mortgages.

FICO Score: A type of credit score created by the Fair Isaac Corporation. Lenders use borrowers’ FICO scores along with other details on borrowers’ credit reports to assess credit risk and determine whether to extend credit.

Finance Charge: The total cost of borrowing, including interest and fees.

First Mortgage: The primary lien against a property.

Fixed Interest Rate: An interest rate on a liability, such as a loan or mortgage, that remains fixed either for the entire term of the loan or for part of this term.

Fixed-Rate Mortgage (FRM): A mortgage that has a fixed interest rate for the entire term of the loan.

Foreclosure: The legal process by which a lender takes control of a property, evicts the homeowner, and sells the home after a homeowner is unable to make full principal and interest payments on their mortgage.

Forbearance: A temporary postponement of mortgage payments.

Freddie Mac: A government-sponsored enterprise that buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market.

Fully Amortizing Payment: A periodic loan payment where if the borrower makes payments according to the loan’s amortization schedule, the loan is fully paid off by the end of its set term.

Funding Fee: A fee associated with a mortgage or loan, often associated with VA loans, which goes directly to the lending agency or program to support its continuation.

Fair Housing Act: U.S. legislation that aims to eliminate discrimination in the rental or purchase of residential properties.

Finance: The management of large amounts of money, especially by governments or large companies.

Financial Institution: An establishment that conducts financial transactions such as investments, loans, and deposits.

Fiscal Policy: The use of government spending and taxation to influence the economy.

Fixed Asset: A long-term tangible piece of property that a firm owns and uses in its operations to generate income.

Fixture: Personal property that becomes real property when attached in a permanent manner to real estate.

Flipping: The act of purchasing a property with the intention of selling it for a profit.

Floor Rate: The minimum interest rate that can be charged on a variable-rate loan or line of credit.

Foreclosure Auction: A sale in which a foreclosed property is sold to the highest bidder.

Forward Commitment: A lender’s promise to make a loan in the future.

Franchise Loan: A loan that is used to open a franchise branch of a larger company.

Front-End Ratio: A ratio that indicates what portion of an individual’s income is allocated to mortgage payments.

Fully Indexed Rate: The maximum interest rate on an adjustable-rate loan, which combines the margin and the index rate.

Funding Date: The date on which funds for a loan are made available to the borrower.

Future Advance: A clause in a mortgage that provides for additional availability of funds under the loan contract.

G

Garnishment: A legal process that allows part of an individual’s earnings to be withheld by an employer for the payment of a debt, such as a defaulted loan.

General Lien: A lien that applies to all the property owned by an individual, including real property and personal property.

Ginnie Mae: Government National Mortgage Association (GNMA); a U.S. government corporation within the Department of Housing and Urban Development (HUD) that guarantees securities backed by federally insured or guaranteed loans.

Good Faith Estimate (GFE): A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. As of October 2015, the GFE was replaced by the loan estimate form.

Grace Period: The period during which a loan payment may be made after its due date without incurring a late penalty.

Graduated Payment Mortgage (GPM): A type of fixed-rate mortgage in which the payment increases gradually from an initial low base level to a higher final level.

Grant: A form of financial assistance given by a government, organization, or person for a specific purpose, which typically does not need to be repaid.

Gross Debt Service Ratio (GDS): The ratio of gross annual income required to cover payments associated with housing costs, including mortgage payments, heat, taxes, and condominium fees.

Gross Income: An individual’s total personal income before taking taxes or deductions into account.

Guarantee: A promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults.

Guarantor: An individual or entity that agrees to be responsible for another’s debt or performance under a contract if the other fails to pay or perform.

Guaranteed Loan: A loan on which a third party promises to pay if the borrower defaults, such as those guaranteed by government agencies.

Guaranteed Mortgage Certificate (GMC): A bond-like certificate that promises to pay a stream of interest and principal payments from a specified pool of mortgages.

Government Loan: A loan that is backed by the government, ensuring the lender is repaid even if the borrower defaults.

Government Mortgage: Any mortgage that is insured or guaranteed by the federal government, such as FHA and VA loans.

Government National Mortgage Association (GNMA): Also known as Ginnie Mae, provides backing for mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).

Graduated Payment: A loan repayment plan that starts with low initial payments that increase over time.

Grant Deed: A document used to transfer title to real property from one person or entity to another.

Green Loan: A loan aimed at supporting environmental sustainability projects.

H

Habitat for Humanity: An international, non-governmental, and nonprofit organization known for building affordable housing for families in need.

Hard Money Loan: A specific type of asset-based loan financing through which a borrower receives funds secured by real property, typically at higher interest rates and shorter terms than traditional commercial or residential property loans.

Hazard Insurance: Insurance coverage that protects a property owner against damage caused by fires, severe storms, earthquakes, or other natural events.

HECM (Home Equity Conversion Mortgage): The FHA’s reverse mortgage program that allows homeowners 62 years or older to convert the equity in their homes to cash while retaining title to the home.

HELOC (Home Equity Line of Credit): A line of credit secured by the equity in a homeowner’s residence. It works similarly to a credit card, with a revolving balance and the ability to draw funds up to a certain limit.

HFA (Housing Finance Agency): State or local government agencies in the United States responsible for supporting affordable housing initiatives, including the underwriting of affordable loans.

High-Cost Mortgage: A home loan that typically has higher fees or higher interest rates than the standard mortgage, and is regulated by the Home Ownership and Equity Protection Act (HOEPA).

High-LTV (Loan-to-Value) Loan: A loan that represents a high percentage of the home’s value. High-LTV loans may be offered to borrowers with low down payment resources.

Holder in Due Course: A party who has acquired a negotiable instrument, such as a promissory note, for value, has done so in good faith and without notice of any defects.

Home Affordable Modification Program (HAMP): A government program designed to help homeowners avoid foreclosure by modifying loans to a level that would be affordable for borrowers in the long term.

Home Equity: The current market value of a homeowner’s unencumbered interest in their property. Essentially, it is the portion of the property that is truly “owned” by the homeowner.

Home Equity Loan: A type of loan in which the borrower uses the equity of their home as collateral. The loan amount is based upon the value of the property, and may be provided as a lump sum or a line of credit.

Home Inspection: An examination of the condition of a real estate property, often conducted by a qualified professional, as a condition of the sale.

Homeowner’s Association (HOA): An organization in a subdivision, planned community, or condominium that makes and enforces rules for the properties and its residents.

Homeowner’s Insurance: A form of property insurance that covers losses and damages to an individual’s house and assets in the home.

Homeowners Protection Act (HPA): A law designed to reduce the unnecessary payment of private mortgage insurance (PMI) by homeowners who no longer require it.

Homeownership Education: Counseling and education programs intended to provide prospective homebuyers with the necessary information and tools to navigate the complexities of the homebuying process.

Housing and Urban Development (HUD): A U.S. government agency that oversees federal programs designed to help Americans with their housing needs.

Housing Counselor: An individual or organization trained and approved by HUD to help people understand their housing options and make wise housing decisions.

HUD-1 Settlement Statement: A standard form used to itemize services and fees charged to the borrower by the lender or broker when applying for a loan for the purchase or refinancing of real estate. Note that the HUD-1 has been replaced by the Closing Disclosure form in most transactions.

Hypothecation: The process of pledging collateral as security for a debt without surrendering title, possession, or ownership rights, such as including inventories that remain in the hands of the pledger.

I

Interest: The cost of borrowing money, typically represented as a percentage rate over the period of a loan.

Interest-Only Loan: A loan where the borrower pays only the interest on the principal balance, with the principal balance unchanged.

Interest Rate: The amount charged by a lender to a borrower for the use of assets expressed as a percentage of the principal.

Interest Rate Cap: A limit on the amount that the interest rate on an adjustable-rate mortgage (ARM) can increase or decrease during an adjustment period.

Interest Rate Ceiling: The highest interest rate that can be charged on a variable-rate loan or adjustable-rate mortgage.

Interest Rate Floor: The lowest interest rate that can be charged on a variable-rate loan or adjustable-rate mortgage.

Interim Financing: Short-term financing used until permanent financing is secured.

Investment Property: Real estate property that has been purchased with the intention of earning a return on the investment, either through rental income, the future resale of the property, or both.

IRA (Individual Retirement Account) Rollover: The process of moving funds from a retirement account into a qualified plan like an IRA without tax consequences.

Issue Date: The date on which a loan or security is issued.

Insolvency: The inability to pay debts when they are due because liabilities far exceed the assets.

Installment Loan: A loan that is repaid over time with a set number of scheduled payments.

Insurance: A contract represented by a policy in which an individual or entity receives financial protection against losses from an insurance company.

Insurance Binder: A temporary insurance arrangement that provides coverage until a permanent policy can be issued or denied.

Insurance Claim: A formal request to an insurance company asking for a payment based on the terms of the insurance policy.

Insured Mortgage: A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI).

Intangible Asset: A non-physical asset having a value due to its attributes and long-term benefits, such as intellectual property or goodwill.

Interest Accrual Rate: The rate at which interest accumulates on a financial instrument.

Interest Rate Reduction Refinance Loan (IRRRL): Also known as the VA streamline refinance loan, it is designed to help eligible veterans or their surviving spouses obtain a lower interest rate by refinancing an existing VA loan.

Interest Rate Swap: A financial derivative instrument in which two parties agree to exchange one stream of interest payments for another, based on a specified principal amount.

Introductory Rate: A low temporary interest rate offered on a credit card or loan to entice customers.

Involuntary Lien: A lien imposed against property without the owner’s consent, often as a result of unpaid taxes or bills.

Invoice Financing: A way for businesses to borrow money against the amounts due from customers.

Irrevocable Trust: A trust that cannot be modified or terminated without the permission of the beneficiary.

Indexed Rate: An interest rate that is tied to a specific benchmark with rate adjustments made at predetermined times.

J

Joint Account: A bank account owned by two or more individuals who share equal access and responsibility.

Joint Credit: Credit issued to two or more people based on their combined incomes, assets, and credit histories.

Joint Liability: The responsibility of two or more people to fulfill the terms of a loan or debt.

Joint Tenancy: A form of ownership in which two or more people have an undivided interest in property, with right of survivorship.

Judgment Lien: A lien placed on a debtor’s property after a court ruling that gives the creditor the right to possess the property if the debtor fails to fulfill their contractual obligations.

Judicial Foreclosure: A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

Jumbo Loan: A mortgage with loan amounts above the standard conforming loan limits, which is not eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac.

Junior Debt: Debt that is ranked below other debts in terms of claims on assets or earnings in the event of a liquidation.

Junior Mortgage: A mortgage that is subordinate to the claims of a prior lien or mortgage, typically an additional loan taken out on a property already mortgaged.

Junk Bonds: High-yield and high-risk bonds rated below investment grade by credit rating agencies.

Jurisdiction: The legal authority to enforce laws or pronounce legal judgments.

Just in Time (JIT) Financing: A strategy where a company schedules financing to arrive just in time for the needs of the business, rather than maintaining large balances of capital.

K

Key Rate: The specific interest rate that determines bank lending rates and the cost of credit for borrowers.

Kiting: The illegal practice of exploiting the time delay required for checks to clear to create a false balance in a bank account by writing checks against uncollected funds in another account.

Knock-Out Option: A type of barrier option that ceases to exist when the price of the underlying security hits a specific price level.

Knowledge-Based Authentication (KBA): A security measure where users are asked to answer at least one “secret” question during an online authentication.

L

Lapse: The termination of a policy due to the policyholder’s failure to pay the premium within the grace period.

Late Charge: The fee charged for a payment that is not received by the due date.

Late Payment: A payment made after its due date, often resulting in additional charges.

Lender: An individual or financial institution that makes funds available to another with the expectation that the funds will be repaid, in addition to any interest and/or fees.

Lender Credit: An arrangement in which a lender agrees to pay some or all of a borrower’s closing costs in exchange for a higher interest rate on a loan.

Lending Criteria: The guidelines set by lenders that determine the creditworthiness and qualifications required of borrowers for a loan.

Leverage: The use of borrowed funds to increase one’s investment capacity and, potentially, one’s return on investment.

Liabilities: Debts or obligations owed by a company or individual.

Liability Insurance: Insurance that provides protection from claims arising from injuries or damage to other people or property.

Lien: A legal claim against a property that must be paid off when the property is sold.

Life Cap: A limit on the amount an interest rate on an adjustable-rate mortgage can increase over the life of the loan.

Line of Credit: An arrangement between a financial institution and a customer that establishes a maximum loan balance that the lender permits the borrower to maintain.

Liquid Assets: Assets that can be easily converted to cash.

Liquidity: The ease with which an asset, or security, can be converted into ready cash without affecting its market price.

Loan: Money borrowed that is usually repaid with interest.

Loan Application: The form used to apply for a loan, which includes information about the borrower, the type of loan, and the terms of the loan.

Loan Approval: The process where the lender reviews a borrower’s loan application and decides to extend credit.

Loan Commitment: A lender’s promise to advance a certain amount of money under specified terms in the future.

Loan Consolidation: The process of combining several loans or liabilities into one loan.

Loan Covenant: A condition that the borrower must comply with to adhere to the terms of the loan agreement.

Loan Estimate: An estimate of all closing fees, including pre-paid and escrow items as well as lender charges; it must be provided to the borrower within three days after submission of a loan application.

Loan Origination: The process by which a borrower applies for a new loan, and a lender processes that application.

Loan Origination Fee: The charge for processing a new loan application, used as compensation for putting the loan in place.

Loan Servicing: The administration aspect of a loan from the time the proceeds are dispersed until the loan is paid off.

Loan Term: The period over which a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term.

Loan to Value (LTV): A ratio used in lending that calculates the amount of a loan underwritten against the value of the property that is to be purchased.

Lock-In: An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

Lock-In Period: The time period during which the lender has guaranteed an interest rate to a borrower.

London Interbank Offered Rate (LIBOR): The average interest rate at which a selection of banks in London are prepared to lend to one another. LIBOR is often used as a benchmark for adjustable-rate loans. (Please note that LIBOR is being phased out and replaced with alternative rate benchmarks).

Loss Mitigation: Steps taken to reduce the amount of loss an investor may suffer if a borrower defaults on a loan.

Low-Documentation Loan: A loan that requires less than the full standard documentation of income, employment, and assets.

Lump-Sum Payment: A single payment for the entire amount of an outstanding loan, often paid at the end of the loan term.

M

Margin: The amount a lender adds to the index rate to determine the interest rate of an adjustable-rate mortgage (ARM) at each adjustment.

Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Maturity Date: The final payment date of a loan at which time the remaining principal and all remaining interest is due and payable.

Means Test: An analysis of whether an individual is eligible for government assistance or other forms of aid, based on income and assets.

Merchant Cash Advance: A financing option for businesses in which a lump sum is given to a business in exchange for an agreed-upon percentage of future revenues or credit card sales.

Mezzanine Financing: A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.

Modification: Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.

Money Market: A segment of the financial market in which financial instruments with high liquidity and short maturities are traded.

Mortgage: A loan used to purchase real estate, where the property itself serves as collateral for the loan.

Mortgage Backed Securities (MBS): A type of asset-backed security that is secured by a mortgage or collection of mortgages.

Mortgage Banker: A company, individual, or institution that originates mortgages, using their own funds or funds borrowed from a warehouse lender.

Mortgage Broker: An intermediary who brings mortgage borrowers and mortgage lenders together, but does not use their own funds to originate mortgages.

Mortgage Insurance: Insurance policies that compensate lenders or investors for losses due to the default of a mortgage loan, often required for borrowers making a down payment of less than 20%.

Mortgage Interest Deduction: A tax deduction for the interest paid on mortgage debt, available to homeowners for mortgage interest paid on the first $750,000 of mortgage debt.

Mortgage Note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time, secured by a mortgage.

Mortgagee: The lender in a mortgage agreement.

Mortgagor: The borrower in a mortgage agreement.

Multifamily Mortgage: A residential mortgage on a dwelling that is designed to house more than four families, such as an apartment complex.

Mutual Fund: An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments, and other assets.

N

Negative Amortization: This occurs when the monthly payments do not cover all of the interest owed. The interest that is not paid is added to the principal balance of the loan, causing the balance to increase rather than decrease over time.

Net Income: This is the total earnings after all expenses and taxes have been deducted.

Net Worth: The total assets minus total liabilities of an individual or company. It represents the financial value of the entity.

No-Closing-Cost Refinance: A type of refinancing where the lender pays the closing costs, typically in exchange for a slightly higher interest rate on the loan.

No-Doc Loan: A type of loan that requires very little documentation from the borrower and is typically extended to borrowers with good credit and a high level of income. These are often higher interest loans and may be riskier for the lender.

Non-Amortizing Loan: A type of loan in which payments are made only on the interest for a period of time, with the principal remaining unchanged.

Non-Conforming Loan: A mortgage that does not meet the guidelines of Government Sponsored Enterprises (GSE) like Fannie Mae and Freddie Mac, and therefore cannot be sold to them.

Non-Recourse Loan: A loan where the lender is only entitled to repayment from the profits of the project the loan is funding, not from other assets of the borrower.

Note: A legal document that serves as an IOU from a borrower to a lender. It specifies the amount of debt, the interest rate, and the terms of repayment.

Notice of Default: A document filed by a lender indicating that a borrower is behind on their loan payments. This is typically the first step in a foreclosure process.

Novation: The act of replacing a party or obligation in a contract with a new one.

O

Obligation: A legal responsibility, such as the duty to repay a loan.

Offer: A formal bid from the homebuyer to the seller to purchase a home.

Offset Account: A savings account or transaction account linked to a loan account, which can offset the balance in that account against the loan balance, thereby reducing the interest paid.

Open-End Credit: A line of credit that can be used repeatedly up to a certain limit, also known as revolving credit.

Open-End Loan: A loan that is not restricted to a specific use or duration and provides the borrower with funds that can be used for various purposes.

Operating Loan: A loan used to fund the everyday operations of a business or company.

Origination Fee: A fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan.

Overcollateralization: An occurrence in securitized finance where the value of the collateral for a loan exceeds the value of the loan itself.

Overdraft Protection: A service that automatically transfers funds from a linked account to cover transactions when the checking account balance is too low.

Owner Financing: A property purchase transaction in which the property seller provides all or part of the financing.

Owner-Occupied: A property that is the principal residence of the owner, as opposed to a rental or investment property.

Ownership Interest: The percentage of a property that an individual owns.

P

Payment Cap: A limit on how much a monthly payment can increase on an adjustable-rate mortgage.

Payment History: The record of a borrower’s past loan and credit card payments, showing whether he or she has made payments on time.

Payoff Amount: The total amount that must be paid to fulfill the terms of a loan and completely satisfy the debt.

Payoff Statement: A statement provided by the lender showing the amount needed to pay off a loan in full.

Penalty Clause: A provision in a loan agreement that sets out penalties for late payment or for prepayment of a loan under certain conditions.

PITI: Principal, Interest, Taxes, and Insurance – the main components of a monthly mortgage payment.

Pledged Account Mortgage (PAM): A type of mortgage where a savings account pledged as collateral is used to help secure the loan.

Points (or Discount Points): Fees paid directly to the lender at closing in exchange for a reduced interest rate. One point equals one percent of the loan amount.

Portfolio Loan: A loan that is kept by the lender in its investment portfolio and is not sold on the secondary market.

Pre-Approval: A lender’s conditional agreement to lend a specific amount based on the borrower’s up-front documentation and credit check before a home is purchased.

Pre-Qualification: The process by which a lender determines if a potential borrower can be financed through the lender, and for how much.

Prepayment: Any amount paid to reduce the principal balance of a loan before the due date.

Prepayment Penalty: A fee that may be charged to a borrower who pays off a loan before it is due.

Prime Rate: The interest rate that banks charge to their most creditworthy customers, usually based on the federal funds rate.

Principal: The amount borrowed on a loan, or the amount still owed on a mortgage, not including interest.

Private Mortgage Insurance (PMI): Insurance payable to a lender for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value.

Promissory Note: A written promise to repay a specified amount of money on demand or at a certain time.

Property Appraisal: A professional assessment of the market value of a property.

Property Tax: A tax levied by the local government based on the value of the property.

Purchase Agreement: A contract between a buyer and seller of real estate to convey a property after terms and conditions have been agreed to and a deposit has been paid.

Q

Qualifying Ratios: Guidelines applied by lenders to determine how large a loan to grant a homebuyer. These ratios are typically calculated as a percentage of the borrower’s gross income.

Quantitative Easing: A monetary policy used by central banks to stimulate the economy by increasing the money supply, often involving the purchase of government securities to lower interest rates and increase lending and liquidity.

Quasi-Contract: An obligation that the law creates in the absence of an agreement between the parties. It is invoked to prevent a party from being unjustly enriched at the expense of another when no real contract has been agreed upon.

Quitclaim Deed: A legal instrument by which the owner of a piece of property transfers any interest they may have in the property without guaranteeing that interest is valid.

Quotation (Quote): An estimate of the current price for securities or other assets which is not an offer to buy or sell but rather the price at which one might transact.

R

Rate Lock: An agreement between a borrower and a lender that allows the borrower to lock in an interest rate on a mortgage for a specified time at the current market interest rate.

Real Estate Owned (REO): Property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction.

Re-amortizing: The process of recalculating the monthly repayments under a loan to reflect changes in the loan’s balance.

Recession: A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

Recourse Loan: A loan for which the borrower is personally liable if the funds are

not repaid, allowing the lender to claim other assets of the borrower if the collateral does not fully cover the loan amount upon default.

Redemption Period: A time period after a home has been sold at a foreclosure auction during which the original borrower can still reclaim the property by paying the sale price and any additional fees.

Refinancing: The process of paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

Regulation Z: A federal regulation that requires mortgage lenders to disclose the annual percentage rate (APR) and other loan terms to borrowers.

Reinstatement Period: The period during which a borrower can avoid foreclosure by paying off the amount owed or by fulfilling any other missed contractual obligation.

Repayment Plan: An agreement between a lender and a borrower to repay delinquent loan payments over a period of time, often used to resolve a default without foreclosure.

Repossession: The process by which a lender takes back property from the borrower, typically after default, as collateral for the loan.

Rescission: The cancellation of a contract in the case of mutual mistake, fraud, undue influence, or lack of capacity to contract; in lending, it particularly refers to the right of a homeowner to cancel a home equity loan or refinancing agreement within three days of signing.

Reserve Requirements: Central bank regulations regarding the minimum amount of reserves that banks must hold against deposits.

Residual Income: The amount of income that an individual has after all personal debts, including a mortgage, have been paid. This calculation is used by VA lenders to determine loan eligibility.

Reverse Mortgage: A type of mortgage for seniors aged 62 and older, allowing them to convert part of the equity in their home into cash without having to sell their home or pay additional monthly bills.

Right of Rescission: A borrower’s legal right to cancel a loan agreement within three business days of closing without penalty or interest charges.

Risk-Based Pricing: Lending practices that offer different interest rates and loan terms to borrowers based on their creditworthiness.

Rollover: Extending the period of a loan beyond its original term, often with new terms or a different interest rate.

S

Satisfaction of Mortgage: A document confirming that a mortgage has been paid in full.

Secured Loan: A loan that is backed by collateral, which the lender can claim if the borrower defaults on the loan.

Securitization: The process of pooling various types of contractual debt such as mortgages and selling their related cash flows to third-party investors as securities.

Security: Property or assets that are pledged by a borrower to back or secure a loan.

Self-Amortizing Loan: A loan that is paid off in full over its life through scheduled payments of principal and interest.

Seller Carry-Back: An agreement in which the seller provides financing for the buyer’s purchase of the property.

Servicer: A company that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary market.

Settlement Statement: A document that summarizes all of the fees and charges that both the homebuyer and seller face during the settlement process of a housing transaction.

Simple Interest: Interest calculated only on the principal amount, or on that portion of the principal amount which remains unpaid.

Small Business Administration (SBA) Loans: Loans guaranteed by the SBA and given by banks and other qualified lenders to help small businesses.

Soft Inquiry: A credit report check that does not affect an individual’s credit score.

Soft Prepayment Penalty: A penalty that allows for the sale or refinancing of a home without a prepayment penalty being applied, but penalizes the borrower if they decide to pay off the mortgage with cash or a loan from another lender.

Standard Payment Calculation: The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

Standing Loan: A type of interest-only loan where the principal is paid only at the end of the term.

Statement of Adjustments: A statement prepared by a lawyer setting out the details of financial adjustments at closing, such as taxes and utilities, for both the buyer and the seller.

Step Rate Mortgage: A mortgage that starts with a fixed interest rate for a certain initial period, after which the rate can change based on predetermined factors.

Straw Buyer: A person who fraudulently purchases property or takes out a mortgage for another party who may not qualify for a mortgage or does not want their name associated with the mortgage transaction.

Subordinate Financing: Any debt secured by a mortgage on a property that ranks below the first, or senior, mortgage in priority.

Subprime Loan: A loan that is offered at a rate above prime to individuals who do not qualify for prime-rate loans.

Survey: The process by which a parcel of land is measured and its area ascertained.

Sweat Equity: The non-monetary contribution that the owners of a business can make toward the operation of the venture, or the contribution homeowners make to the renovation or rebuilding of their homes.

Swing Loan: Also known as a bridge loan, a short-term loan that covers the interval between the purchase of a new property and the sale of the old property.

T

Teaser Rate: An initial, low interest rate on an adjustable-rate mortgage or credit card that increases after a set period of time.

Term: The length of time until a loan is due to be paid off, such as a 15-year or 30-year mortgage.

Term Loan: A loan for a specific amount that has a specified repayment schedule and a fixed or floating interest rate.

Title: A legal document evidencing a person’s right to or ownership of a property.

Title Insurance: Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

Title Search: A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Total Debt Ratio: A borrower’s total monthly debt burden as compared to their monthly gross income, used by lenders to assess the borrower’s ability to manage monthly payments and repay debts.

Total Interest Percentage (TIP): The total amount of interest that a borrower would pay over the life of a loan, expressed as a percentage of the loan amount.

Trade Line: An account recorded on a credit report. Each credit account owned is a trade line.

Tranche: A portion of a pooled set of loans (such as mortgages) structured for sale to investors.

Transfer of Ownership: Any means by which the ownership of a property changes hands. Lenders may require notification and approval before the transfer can take place.

Treasury Index: An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities.

Truth in Lending Act (TILA): A federal law that requires lenders to provide borrowers with exact terms and costs of borrowing before they are bound to a loan agreement.

Trust Deed: A legal document in which title to property is transferred to a third party to hold as security for a debt. Also known as a deed of trust.

U

Underwriting: The process by which a lender evaluates the risk of lending money to a particular borrower and establishes suitable terms and conditions for the loan.

Underwriter: An individual or entity that evaluates and assumes another’s risk for a fee, such as a commission, premium, spread, or interest.

Unsecured Loan: A loan that is issued and supported only by the borrower’s creditworthiness, rather than by any type of collateral.

Usury: Charging an excessively high or illegal rate of interest on a loan.

Underwater Mortgage: A mortgage loan that has a higher principal balance than the market value of the property.

Uniform Residential Loan Application (URLA): A standardized mortgage application form used in the United States.

Uniform Commercial Code (UCC): A set of laws that provide legal rules and regulations governing commercial or business dealings and transactions.

Unencumbered Property: A property that is free of liens and any other encumbrances. No other party can claim ownership or a right to the property.

Uniform Settlement Statement (HUD-1): A standardized form used by settlement or closing agents to itemize all charges imposed upon a borrower and seller for a real estate transaction.

Unsubsidized Loan: A type of federal student loan on which the borrower is responsible for paying all the interest that accrues from the time of disbursement.

Upfront Mortgage Insurance Premium (UFMIP): A one-time mortgage insurance premium paid at closing to insure the loan with the Federal Housing Administration (FHA).

V

Variable Interest Rate: An interest rate that can fluctuate over the term of the loan in accordance with changes in the market interest rates.

Variable Rate Mortgage (VRM): A type of home loan in which the interest rate is not fixed and can vary based on market conditions.

VA Loan: A mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA) for eligible veterans, service members, and their spouses.

Vested: This term refers to a borrower’s right to the benefits of funds accrued, such as from a retirement fund or an employer-match program, after a certain period of time.

Vesting Period: The period of time before shares in an employee stock option plan or benefits in a retirement plan are unconditionally owned by an employee.

Voluntary Foreclosure: A type of foreclosure initiated by a borrower, usually to avoid a public sale or auction of the property due to inability to continue making payments.

Verification of Deposit (VOD): A document signed by the borrower’s banking institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE): A document used by banks and mortgage companies to verify the employment status and income of a borrower.

Vendor Take-Back Mortgage: A type of mortgage where the seller of a property provides financing to a buyer. This can be the primary mortgage or a second mortgage.

Volume: In the context of loans, this can refer to the total amount of loans a bank or financial institution has issued within a particular period.

Volatility: A statistical measure of the dispersion of returns for a given security or market index, which can affect interest rates and, as a result, the cost of borrowing.

W

Waiver: The voluntary act of relinquishing or refraining from claiming a right.

Walk-Through: A final inspection of a home before settlement to check for issues that may need to be addressed.

Warehouse Fee: A fee charged by a mortgage lender to hold a loan temporarily before it is sold on the secondary market.

Warehouse Lending: A line of credit given to a loan originator to pay for a mortgage that a borrower initially applies for, before the mortgage is sold to a secondary market purchaser.

Warranty Deed: A deed that transfers ownership and explicitly promises the new owner that the grantor has clear title to the property.

Wraparound Mortgage: A form of secondary financing for the purchase of real property where the new mortgage is inclusive of and exists in addition to the old mortgage.

Write-Down: The accounting act of reducing the value of an asset to reflect its current value as it is less than the amount shown in the accounting books.

Write-Off: A portion of a debt that is deemed uncollectible and is therefore written off as a loss in the company’s accounting records.

X

Y

Yield: The income return on an investment, such as the interest or dividends received from holding a particular security. This is often expressed as an annual percentage based on the investment’s cost, its current market value, or its face value.

Yield Spread Premium (YSP): A form of compensation that a mortgage broker receives from a lender for originating a loan with a higher interest rate than the agreed-upon rate with the borrower.

Yield to Maturity (YTM): The total return anticipated on a bond if the bond is held until it matures.

Year-End Statement: A financial summary provided by the lender to the borrower detailing the year’s loan transactions, including interest and mortgage payments.

Yield Curve: A line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates, typically governments bonds.

Yield on Earning Assets (YEA): A measure used to evaluate the earnings generated by a bank or financial institution’s assets.

Yearly Adjustable-Rate Mortgage (ARM): A type of ARM that adjusts once a year.

Z

Zero-Down Mortgage: A mortgage product that requires no down payment from the borrower. These loans are often provided to individuals who might not otherwise qualify for a conventional home loan.

Zero-Balance Account (ZBA): A checking account in which a balance of zero is maintained by automatically transferring funds from a master account in an amount only large enough to cover checks presented.

Zoning: Regulations established by local governments regarding the type of structures that can be built in a particular area as well as the use of the land. Zoning laws can affect the value of a property and its suitability for mortgages.

Z-Tranche: A tranche of a real estate mortgage investment conduit (REMIC) that is entitled to receive principal payments only after the earlier tranches have been paid. It is also known as an accrual bond or deferred interest bond.

Z-Score: In the context of credit analysis, it’s a statistical measure that quantifies the probability of a company entering bankruptcy within a certain time frame.

Zero-Coupon Mortgage: A type of mortgage that pays no interest but is sold at a deep discount to its face value. The borrower typically pays off the face value at the maturity of the mortgage.

Zip Code: While not directly related to the mechanics of a loan, a borrower’s zip code can have implications for loan approval and conditions, as it can indicate the area’s real estate values, economic conditions, and even credit worthiness.

By continuing to use our website, you acknowledge that you have read and understood our Disclaimer, Privacy Policy, and Terms of Service. Your continued use of the site signifies your agreement to these terms.