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Some definitions and lingo you might want to know.
Amortization is the process of paying off a loan according to a regular repayment schedule. With a home equity loan amortization schedule, the percentage of your fixed monthly payment that applies toward paying down the interest on your loan decreases over time as the amount applied against your principal increases.
Annual Percentage Rate (APR) is the cost, expressed as a yearly percentage, of what you pay a lender for the opportunity to borrow the lenders money. Because it takes into account your interest rate, discount points and lender fees, it may be higher than the interest rate of the loan.
Appraisal is the report performed by a licensed, certified appraiser that provides an estimate of the current market value of your home on a specific date.
Automated Valuation Model (AVM) is a tool that uses mathematical modeling to estimate your homes value, using inputs such as data on comparable home sales, listing trends, and home price changes.
Cash-out refinancing involves replacing your original mortgage with a new mortgage for a greater amount in order to access the equity in your home. At closing, your lender pays off the original mortgage and you receive the difference in cash or the difference is used to pay off debts that you may specify.
Closed-end loan is one in which you receive your money in one lump sum at closing and agree to repay it by a specified date.
Closing, also known as settlement, is a meeting between you and a closing agent at the conclusion of your loan application process when you sign your loan documents.
Collateral is property that you pledge to a lender to secure a loan. Because you are giving a security interest in your home to your lender, your home serves as collateral for your home equity loan. If you dont make your loan payments, a lender may legally foreclose on your home and sell it to recoup the amount you owe.
Combined Loan-To-Value (CLTV) is the ratio, expressed as a percentage, of the unpaid amount of all mortgages and loans secured by your home and the appraised value of your home. For example, if your home is appraised at $300,000 and you owe $100,000 on your mortgage and $50,000 on your home equity loan, your CLTV is 50%.
A credit report is the record of all your debts and obligations and how responsible you are in handling them. To help them decide if they will give you a loan, lenders look at your credit report to see the frequency with which you use credit, whether you make your payments on time, and if you have too much debt in relation to your income.
Debt-to-income ratio (DTI) is one of the factors used to determine if you qualify for a loan. It compares your total monthly income with all the payments youre expected to make each month, including your home equity loan payment. For example, if your gross household monthly income is $5,000 and you have recurring monthly debt of $2,500, your DTI is 50%.
Default occurs when a borrower fails to meet the obligations of the loan contract, including failure to make loan payments.
Delinquency occurs when a borrower falls behind with making on-time payments, per your contract with the lender.
Depreciation occurs when property decreases in value over time.
Equity is the difference between the market value of your home (what it could sell for) and the amount you still owe on your mortgage. For example, if the market value of your home is $300,000 and you owe $100,000, you have $200,000 in home equity.
The Fair Housing Act is a Federal law that prohibits discrimination based on a borrowers race, color, religion, gender, handicap, familial status (families with children) or national origin and applies to all aspects of mortgage and home equity lending.
A fixed rate is an interest rate that stays the same for the life of a loan.
Fixed term refers to a loan with a pre-determined payoff date.
Forbearance is the grace period when foreclosure is postponed to allow a borrower time to catch up on past-due payments.
Foreclosure is the legal process that allows a lender to seize and later sell property used as collateral for a loan because the borrower defaults on the loan.
Grace period is the period after a loans payment due date during which you can make a payment without incurring a late fee.
Gross income is your total income before taxes and other expenses are deducted.
A home equity loan (HEL) lets you borrow a fixed amount, secured by the equity in your home, and receive your money in one lump sum. Typically, home equity loans have a fixed interest rate, fixed term and fixed monthly payment. Interest on a home equity loan may be 100% tax deductible under certain circumstances. Please consult your tax advisor to see if you qualify.
A home equity line of credit (HELOC) lets you borrow up to a fixed amount, secured by the equity in your home, and withdraw your money as you need it over a specified time period. Typically, home equity lines of credit have a variable interest rate, variable term and variable monthly payment. Funds become available for subsequent withdrawal as you pay down the principal balance on the line of credit. Interest on a home equity line of credit may be 100% tax deductible under certain circumstances. Please consult your tax advisor to see if you qualify.
Interest rate is the cost, expressed as a percentage, of what you pay a lender for the opportunity to borrow the lenders money. It is one of the factors that goes into determining the Annual Percentage Rate on your loan.
Liens are a lenders claims against the value of property used as collateral for a loan. Typically, your mortgage is considered the first lien because, in case of foreclosure or sales of the property, its the first loan that must be repaid. A home equity loan or line of credit is usually considered a second lien because theyre the next in line for repayment after the mortgage. Liens are released when the loan is repaid in full.
Loan Estimate is an estimate provided to you by a mortgage or home equity lender detailing all the anticipated costs associated with buying, refinancing or taking out an equity loan on your home. After you apply for a mortgage or an equity loan, your lender must mail a Loan Estimate to you within three business days of your application being accepted.
Monthly housing payment, also called PITI, is total you pay every month for a home loan. It includes Principal, Interest, real estate Taxes, homeowners Insurance and, if applicable, private mortgage insurance, flood insurance, and assessments.
Power of attorney is a legal document authorizing one person to act on behalf of another.
Prepayment is the full or partial payment of a loans principal balance before the due date. It can result when you make extra payments, sell your property or refinance your existing mortgage.
Principal is the actual amount of money you borrow on a loan; you also pay a lender interest, determined by your interest rate, for the opportunity to borrow the lenders money.
Refinancing involves paying off your existing mortgage with funds from a new mortgage secured by the same property. Typically, homeowners refinance to get a lower interest rate, reduce their monthly payments or to access equity using a cash-out refinance.
Title establishes legal proof of your ownership of property and establishes your rights as the owner.
Underwriting involves verifying the information you provide on a loan application and evaluating whether you will receive the loan. Many factors go into this evaluation, including your income, employment history, credit report, debt-to-income ratio and the value of your assets and debts.
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