Financial Loan Glossary

The total yearly cost of your loan including interest rate plus all fees, expressed as a percentage. This is the real cost of borrowing money.

A payment schedule that gradually reduces your loan balance over time. Early payments go mostly to interest, later payments go mostly to principal.

A mortgage with an interest rate that can change over time based on market conditions. Usually starts with a lower 'teaser' rate.

A contract provision that allows the lender to demand immediate full payment of the loan if you violate certain terms, like missing payments.

A large final payment due at the end of a loan term. These loans often have smaller monthly payments but require a big lump sum at the end.

A unit for measuring interest rates. One basis point equals 0.01%. So 100 basis points = 1%.

A short-term loan used to 'bridge' the gap between buying a new home and selling your old one. Usually has higher interest rates.

All the fees you pay when finalizing a loan, including appraisal, title insurance, and origination fees. Usually 2-5% of the loan amount.

Property or assets that secure a loan. If you don't pay, the lender can take the collateral. Your house secures your mortgage.

A number between 300-850 that shows how likely you are to repay debts. Higher scores get better interest rates.

The percentage of your available credit that you're using. Keeping this below 30% helps your credit score.

Your total monthly debt payments divided by your gross monthly income. Lenders prefer DTI below 28% for housing and 36% total.

Failing to make required loan payments. This damages your credit and can lead to foreclosure or repossession.

Money you pay upfront when buying a home. Larger down payments usually mean better loan terms and no PMI.

The part of your home that you actually own. It's your home's value minus what you still owe on your mortgage.

Money held by a third party to pay property taxes and insurance. Often included in your monthly mortgage payment.

An interest rate that never changes during the life of your loan. Your monthly payment stays the same.

When a lender takes your home because you haven't made mortgage payments. This severely damages your credit.

A government-backed mortgage that allows lower down payments and credit scores. Requires mortgage insurance.

Time after your payment due date before you're charged a late fee. Usually 10-15 days.

A document showing estimated loan costs. Now replaced by the Loan Estimate form.

Home Equity Line of Credit. A revolving credit line secured by your home equity. You can borrow and repay as needed.

A fixed-amount loan secured by your home equity. Often called a 'second mortgage.'

The percentage charged for borrowing money, not including fees. This is different from APR which includes fees.

A loan where you only pay interest for a period, then start paying principal too. Monthly payments increase later.

A mortgage larger than government-sponsored enterprises can buy. Usually has higher interest rates and stricter requirements.

Your loan amount divided by the property value. Lower LTV ratios get better rates and avoid PMI.

A penalty charged when your payment is received after the due date. Usually $25-50 or 5% of the payment.

A legal claim against your property until a debt is paid. Your mortgage lender has a lien on your home.

Insurance that protects the lender if you default. Required for conventional loans with less than 20% down.

The date when your loan must be fully paid off. For a 30-year mortgage, this is 30 years from closing.

A fee charged by the lender for processing your loan application. Usually 0.5% to 1% of the loan amount.

Extra fees charged beyond the standard loan terms. Watch out for these in predatory loans.

The original amount you borrowed, not including interest. Each payment reduces the principal balance.

Insurance required on conventional loans with less than 20% down. Protects the lender, not you.

A fee for paying off your loan early or making extra payments. Avoid loans with these penalties.

Upfront fees to reduce your interest rate. One point = 1% of loan amount = 0.25% rate reduction typically.

Replacing your current loan with a new one, usually to get better terms or lower payments.

A guarantee that your interest rate won't change for a specific period during the loan process.

A loan for borrowers with poor credit. Usually has higher interest rates and more fees.

A loan backed by collateral. If you don't pay, the lender can take the collateral.

Insurance that protects against problems with property ownership, like liens or ownership disputes.

A law requiring lenders to clearly disclose loan terms and costs before you sign.

The process where lenders review your finances to decide if they'll approve your loan and what terms to offer.

A loan not backed by collateral, like most credit cards and personal loans. Higher risk means higher rates.

An interest rate that can change over time based on market conditions. Your payments can go up or down.

A government-backed mortgage for military veterans with no down payment requirement and no mortgage insurance.