Glossary of Home Equity Terms

A | C | D | E | F | H | I | L | P | R | T

A

Amortization Schedule
A schedule of payments designed to fully pay back the loan amount and interest in a specified period of time.

Annual Percentage Rate (APR)
The cost of credit expressed as a yearly rate. The annual percentage rate is often not the same as the interest rate. It is a percentage that results from an equation considering the amount financed, the finance charges, and the term of the loan.

Application
An initial statement of personal and financial information required to apply for a loan.

Application Fee
Fee charged by a lender to cover the initial costs of processing a loan application.

Appraisal
An opinion by a licensed appraiser of the value or worth of a property on which loans are normally based.

Appraised Value
The value of a home as determined by a certified appraiser.

Assessed Value
Value assigned to property by a local government for tax purposes. (This does not determine the appraised value for a mortgage loan.)

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C

Cap
Limit on how much the interest rate can be.

Closing
The specific time and place at which all appropriate documents associated with the equity loan or refinance are signed and notarized as required.

Closing Costs
The costs incurred by the borrower at the time of closing, usually including such expenses as title policy and recording fees.

Credit Bureau
A credit bureau is a clearinghouse for credit history information. Credit grantors provide the credit bureau with information on how their credit customers pay their bills. The bureau assembles this information, along with other public record information, into a "file" on each consumer.

Credit Report
Detailing the credit history of a consumer, this report is used to help determine the consumer's credit worthiness.

Credit Score
A statistical method of assessing an applicant's credit worthiness. An applicant's credit card history; amount of outstanding debt; the type of credit used; negative information such as bankruptcies or late payments; collection accounts and judgments; too little credit history, and too many credit lines with the maximum amount borrowed are all included in credit-scoring models to determine the credit score.

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D

Debt-to-Income Ratio
The relationship between monthly income and minimum monthly debt payments; frequently used by financial institutions as an indicator of a borrower's ability to take on additional debt.

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E

Equal Credit Opportunity Act (ECOA)
Federal law requiring creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract), or because all of part of the applicant’s income is derived from any public assistance program, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act (or any state law upon which an exemption has been granted by the Board of Governors of the Federal Reserve System).

Equity
The difference between the appraised value of a property and the balance of a first mortgage and any other outstanding liens on the property.

Equity Loan
An installment loan for a fixed dollar amount which allows you to borrow against the equity you have in your home that you already own. Interest payments on home equity loans may be tax deductible. Consult your tax advisor concerning the deductibility of interest.

Equity Line of Credit
A variable rate line of credit tied to Prime which allows you to borrow against the equity you have in your home that you already own. Interest payments on home equity lines of credit may be tax deductible. Consult your tax advisor concerning the deductibility of interest.

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F

Finance Charge
The total cost, including interest payments and certain fees a borrower pays to obtain credit.

Flood Insurance
Insurance that covers physical damage to a property caused by flood. Flood damage is typically not covered under standard hazard insurance.

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H

Homeowners Insurance
Insurance that protects the homeowner from “casualty” (losses or damage to the home or personal property) and from “liability” (damages to other people or property). Also referred to as hazard insurance.

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I

Interest
The sum paid to lender for money borrowed.

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L

Loan-to-Value Ratio
The balance of your first mortgage and other outstanding liens on your property divided by the appraised value of your home.

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P

Pre-Approval
The pre-approval process allows you to obtain an actual mortgage loan commitment prior to the purchase of your home. You are issued a certificate that will allow you to negotiate with the confidence of a cash buyer.

Prequalification
The process of determining how much money a prospective borrower will be eligible to borrow prior to applying for a loan. Prequalification does not constitute a commitment or guarantee from a lender to make a loan. Information submitted during prequalification is subject to verification at application.

Principal
The amount of debt, not including interest, outstanding on a loan.

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R

Refinancing
The process of paying off one loan with the proceeds from a new loan.

RESPA
Real Estate Settlement Procedures Act. RESPA is a federal law that gives consumers the right to review information about loan settlement costs. The law gives you the right to review this information after you apply for a loan, and again at loan settlement. Lenders are required to provide these settlement costs after application is submitted.

Right to Rescission
Under the provisions of the Truth-in-Lending Act, the borrower's right, on certain kinds of loans, to cancel the loan within three business days of signing a note or agreement.

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T

Title
Document which indicates evidence of ownership of a property.

Title Company
The company that insures title to property.

Title Insurance
Insurance that is required by a lender to protect against loss due to disputes over ownership of a property.

Title Search
Examination of real estate records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.

Trade Lines (or Credit Accounts)
Trade lines are the credit accounts listed on a credit report.

Truth-in-Lending Act
Federal law requiring written disclosure of the terms of a mortgage (including the APR and finance charges) by a lender to a borrower after application.

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