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M
Margin:
An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.
Market Value:
The price a reasonable buyer would pay for a home under reasonable market conditions.
MasterCard International:
A non-profit association that manages a range of payment programs and services, including MasterCard credit cards, MasterCard debit cards, Maestro online debit cards, Cirrus ATM cash access, and related programs. It does not issue cards, set terms of cards, or solicit merchants to accept cards. Member financial institutions provide those functions.
Merchant Discount Fee:
The amount a merchant pays its financial institution to process credit card transactions. The fee can range from pennies per purchase to as high as 10%, depending on volume and the risk factor of the type of business.
Mileage Allowance or Mileage Limitation:
A specified number of miles a car may be driven over the life of the term of a lease.
Mileage Charge:
An additional charge the lessee must pay if they surpass the mileage of allowance, usually between 12,000-15,000 miles a year.
Minimum Payment:
The smallest payment amount that can be made on a credit card to maintain a current payment record. It is typically 2-2.5% of the balance on bankcards, and 2.5% or more on retail credit cards.
Monthly Periodic Rate:
The annual interest rate divided by 12.
Mortgage:
A legal document that creates a lien against real property as security for a loan. It is not in itself evidence of a debt; the note is the promise to pay the debt. Also, a lien on the property secured by a promise to repay a loan. [more information: Mortgage Products]
Mortgage Banker:
A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac.
Mortgage Broker:
An intermediary who brings together borrowers and lenders, for a fee. In some states, mortgage brokers must be licensed.
Mortgage Insurance:
An insurance policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. (see also "MIP" below and Private Mortgage Insurance.)
Mortgage Insurance Premium (MIP):
The term for a type of mortgage insurance that is required on all FHA loans. MIP fees are collected and pooled by the Department of Housing and Urban Development (HUD), to insure lenders from potential loss in the event of default on the mortgage.
Mortgage Modification:
A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
Mortgage Note:
A written promise to repay a loan, and the terms of that loan. The note is secured by real property.
Mortgagee:
The lender in a mortgage contract.
Mortgagor:
The borrower in a mortgage contract.
Manufacturer's Suggested Retail Price (MSRP):
An amount representing the recommended selling price of an automobile and each option offered.
N
Negative Amortization:
A condition occurring in certain types of loans when the monthly payments are not enough to cover principal and interest. The amount of the shortage is added to the loan causing the loan to increase instead of decreasing. This is negative amortization.
Negative-equity Financing:
Financing for new car buyers who owe more on their trade-in than the car is worth.
Net Worth:
The assets of a consumer or company less their liabilities.
Non-prime Rate:
Interest rates charged by banks to those customers with below average credit; also called a sub prime rate. These rates can be much higher than standard or average interest rates.
O
Obligor:
A person who owes money to a creditor.
Obsolete Information:
Information that has exceeded the time limits allowed by the Fair Credit Reporting Act for the reporting of negative information. Generally those limits are seven and a half years from the original date of delinquency, with the exception of bankruptcies that may be reported for ten years.
[To learn more about negative information on credit reports CLICK HERE.]
Offer:
An indication by a potential buyer of a willingness to purchase a home at a specific price, generally put forth in writing.
Open-end Lease:
A lease that offers lower payments, but is riskier to the consumer. At the end of the lease the lessee must pay the difference between the residual value of the vehicle and the fair market value of the vehicle.
Options:
Add-ons offered during an auto purchase, such as a stereo, security system, undercoating, etc. which are purely decorative features and may add little to no value to the car.
Origination:
The process of preparing, submitting, and evaluating a loan application, generally includes a performing a borrower credit check, verification of employment, and a property appraisal.
Origination Fee:
The fee a lender charges to process a mortgage loan. One to one-and-a -half points is common.
Over-limit Fee:
A fee charged when a cardholder exceeds the credit limit on their credit card, even if authorization was provided for the transaction. The issuer can charge as much as $35 every month that the cardholder remains over the limit.
P
PITI: Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable). These monies go into an escrow account to cover the fees when they are due. PITI is a common acronym for the monthly payment on a mortgage, consisting of principal, interest, taxes, and insurance.
Partial Claim:
a loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.
Payment Adjustment Period:
The window of opportunity between points when a lender can adjust the mortgage payment.
Penalty Fees:
The general term used for credit card fees that penalize the cardholder, including late fees, over-the-limit fees and bounced check fees.
Penalty Rates:
Interest rates on credit cards raised if the cardholder is late. According to Consumer Action’s 2001 Credit Card Survey, 69% of issuers raise rates if the cardholder is late. Some issuers will raise rates if the cardholder is late on other accounts. The highest penalty rate recorded to date is 29.99%.
Per Adjustment Cap:
The highest amount the interest rate can increase in one adjustment.
Periodic Rate:
The interest rate expressed in daily or monthly terms, calculated by dividing the APR by 365 (daily) or by 12 (monthly).
Personal Identification Number:
A number that must be used to complete some credit or debit transactions as a security measure. When choosing a PIN, avoid obvious numbers such as your address, family birthdays, or your phone number.
Points:
A fee charged to the borrower by a lender for making a mortgage loan. One point is equal to one percent of the loan amount. For example, on a $100,000 loan amount, one point is equal to $1000.
Platinum Card:
A credit card that typically carries a higher annual fee and offers more perks than a gold card.
Pre-Approved Credit Card:
A credit card offer where the potential cardholder has met some initial screening characteristics. A pre-approved credit card does not mean the consumer is guaranteed to get the card upon request, instead the consumer may receive a card with higher rates or terms, depending on the lender’s standards.
Pre-Approved Mortgage:
A commitment by a mortgage lender to loan a certain amount of money to a borrower within a certain time frame. A true pre-approval is valuable to a seller because it indicates that the lender has already checked the buyer’s credit and qualifications and is willing to make the loan. Some lenders, however, use the term pre-approval interchangeably with pre-qualification. [CLICK HERE to be pre-approved for a mortgage]
Pre-Foreclosure Sale:
Sale that allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.
Pre-Payment Penalty:
A fee paid to lender if a borrower pays off a loan prior to a specified period of time. In mortgages, prepayment penalties are not permitted on ARM’s after the first adjustment period. Some common prepayment penalty time periods are 3 or 5 years.
Pre-Qualified Mortgage:
A process where a prospective homebuyer’s credit, income and debts are examined to give them an estimate of what they can borrow. It is not a promise to make a mortgage of that amount. [CLICK HERE to be pre-qualified for a mortgage]
Premium:
An amount paid on a regular schedule by a policyholder that maintains insurance coverage.
Prepayment:
Payment of the mortgage loan before the scheduled due date, may be subject to a prepayment penalty.
Prepayment Penalty:
A fee assessed by a lender for the early termination of a loan. The fee offsets the lender costs associated with originating a loan, and provides the lender a guaranteed profit margin.
Primary Mortgage Market:
The market in which loans are made directly to borrowers, as opposed to the secondary market, where existing loans are purchased and sold, often for investment purposes.
Prime Rate (P):
Interest rate charged by banks to their best and most creditworthy customers.
Principal:
The amount financed for a loan, or the remaining balance of the original amount of the loan.
Private Mortgage Insurance (PMI):
An insurance policy usually required on conventional mortgages when the down payment is less than 20% of the purchase price. It may also be required when the combined loan-to-value ratios of a first and second mortgage are greater than 70%. PMI protects the lender, not the borrower, in the case of default, and it can add substantially to the cost of the loan. You can request that PMI be removed when your equity in your home exceeds 20%, however, you may be required to pay for a new appraisal to do so.
Public Records:
Recorded information about legal matters such as judgments, liens or bankruptcies. These are usually maintained at the courthouse, gathered by third party agencies, and supplied to credit reporting agencies.
Purchase Option:
In an auto lease, a clause that allows the lessee to purchase the vehicle at the end of the lease term.
Q
Qualifying Ratio:
A relationship of monthly expenses to gross monthly income used by some creditors to evaluate loan applications. Qualifying ratios may differ from lender to lender.
Quitclaim Deed:
A process for releasing all claims on a property used to clear clouds on the title, commonly in a divorce situation.
R
Radon:
A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.
Rating:
Many credit bureaus use codes, such as R-1, R-2, and R-3 to indicate whether an account has been paid on time. A listing of these codes and what they indicate can be found in Credit Reports: Reading your Report. In addition, the term credit rating is often used to describe a credit report or a credit score.
Rate of Return:
Annual return on an original investment amount.
Real Estate Agent:
An individual who is licensed to negotiate and arrange real estate sales and who works for a real estate broker.
Realtor:
A real estate agent or broker who is a member of the National Association of Realtors and its local and state associations.
Real Estate Loans:
First and second mortgages; a type of installment loan.
Rebate:
A manufacturer's reduction on the price of the vehicle as an incentive to buyers.
Rebate Card:
A credit card offering cardholders cash rebates, free merchandise, or other rewards, usually based the amount charged on the card.
Refinance:
To replace a current loan with a new one.
Refinancing:
Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms, like a lower interest rate.
Rehabilitation mortgage:
A mortgage that covers the costs of rehabilitating (repairing or improving) a property. Some rehabilitation mortgages (like the FHA's 203(k)) allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.
RESPA:
An acronym for the Real Estate Settlement Procedures Act, a federal law requiring disclosure of all closing costs on most residential property. The Real Estate Settlement Procedures Act also protects consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships
Residual Value:
The amount agreed upon to represent the value of the vehicle at the end of a lease.
Revolver:
A term used to describe a person who carries a balance on their credit card from month to month.
Revolving Credit:
Accounts that can be borrowed from based on need, up to the credit limit. Payments will typically vary based on the outstanding loan amount.
Rule of 78:
A type of loan financing where the entire interest is weighted and paid off in the first year.
S
Satisfaction of Mortgage:
A statement filed with the local courthouse after the mortgage is paid in full, or satisfied. It is the lender’s responsibility to file it, but the borrower should follow up to make sure it is taken care of. There may be a fee charged.
Second Mortgage:
A loan secondary to the first mortgage. Second mortgages are often taken out in the form of home equity loans or home equity lines of credit. Interest rates for second mortgages are generally higher than first mortgage interest rates.
Secured Credit Card:
A major credit card offered to consumers with damaged credit or no established credit. The cardholder deposits funds as a security deposit in an account and the lender allows the cardholder to make credit card purchases using anywhere from 50% to 150% of the amount placed on deposit.
Secured Loan:
A loan where property is pledged as collateral in case of default. These include car and boat loans, mortgages, and sometimes loans to purchase furniture or other household items.
Seller Carryback:
Where a seller agrees to finance part or all of a first or second mortgage. In other words, the seller is acting as a lender and the buyer will make payments to the seller for that financing.
Settlement:
Another name for closing .
Simple Interest Loan:
A method for calculating interest only on the principal balance. The formula for simple interest is the Final Cost of the Loan = Principal x (1+ the number of interest periods x the annual percentage rate).
Smart Card:
A credit card with a microchip that stores a great deal more information than a typical credit card. Smart cards are popular in Europe, but slower to catch on in the United States.
Social Security Number:
The unique nine-digit number assigned to legal residents of the United States by the Social Security Administration. Social security numbers are a common identifier for credit reports.
Special Forbearance:
A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.
Sub Prime Rate:
see Non Prime Rate.
Subordinate:
To place in a rank of lesser importance or to make one claim secondary to another. Exisiting second liens against real estate are typically subordinated to the new first lien during a refinance action.
Survey:
A property diagram that indicates legal boundaries, easements, encroachments, rights of way, and improvement locations.
Sweat equity:
A term used to express the amount of labor required to build or improve a property.
T
Tax Lien:
A Federal, state or local government's claim to the debtor's property for the repayment of unpaid taxes. This is a type of public record.
Teaser Rate:
A beginning low introductory rate that changes after a certain period of time to a different rate, usually substantially higher.
Terms:
The conditions of a loan or credit card account.
Title 1:
An FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home. Title I loans less than $7,500 don't require a property lien.
Title Insurance:
Insurance protecting against defects in the title. There are two types: The lender’s policy required to protect the lender, and an owner’s policy, not required but recommended to protect the buyer. Often the buyer of a property pays for title insurance, but that is negotiable.
Title Search:
A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.
Trade-In Value:
The amount the dealership will compensate for a vehicle if used as either partial or full payment for another vehicle. Normally this value is about 5% below the wholesale value of the vehicle.
Tradeline:
Any account listed on a credit report.
Trans Union:
One of the three major national credit-reporting agencies.
Truth in Lending Act:
A section in the Consumer Protection Act that requires lenders to disclose the total cost of the loan, annual percentage rate (APR), and other terms.
Two Cycle Average Daily Balance Method:
A special method for calculating interest on a credit card that is used by a few issuers, including a couple of major national issuers. In cases where a consumer starts a billing cycle with a zero balance then does not pay the next bill in full, interest on any purchases made in the second billing cycle will be dated back to the original date of purchase, rather than the opening date of the second billing cycle. This can be confusing, and it only really comes into play in cases where a person goes from carrying no balance to carrying one. For consumers who consistently carry a balance or always pay in full, this calculation method is of no consequence.
U
Underwriting:
The process of determining risk and establishing a loan's terms and conditions, usually based on the person's creditworthiness and the value of property, if any, that will be used to secure the loan
Unsecured Loan:
A loan based on an agreement to repay without the use of collateral.
Up-front Costs:
A sum that must be paid at the time of signing a lease agreement. These costs include, first month's payment, security deposit, down payment, taxes, registration, etc.
Upside Down:
When the outstanding balance of an auto loan is higher than the current fair market value, the borrower is said to be “upside down”.
V
VA:
Department of Veterans Affairs, a federal agency which guarantees loans made to veterans. Loan guarantees made by the VA protect lenders against loss that may result from a borrower default.
VA Loans:
The Department of Veteran's Affairs guarantees loans, to the lender, for qualified veterans. These loans require very minimal down payments and are assumable. [CLICK HERE to contact a lender about a VA loan.]
Variable Interest Rate:
An interest rate that changes based on an economic indicator, such as the prime rate.
Visa:
Visa International is a membership association made up of financial institutions issuing Visa credit; debit and stored value cards; corporate, purchasing and business cards; travelers' checks and Visa Travel Money. Visa does not issue cards directly to consumers, nor does it decide the terms of those cards.
W
Wrap-around mortgage:
A type of mortgage where a seller adds a second mortgage to an existing lien, and the buyer makes payments on both of them.
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