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Glossary
A | B | C | D | E | F | G | H | I | J–K | L | M | N | O | P–Q | R | S | T | U | V | W–Z
A
Advance Fee Loan Scam – A form of fraud in which consumers are asked to pay a fee up front and receive a quick loan of a large size with a very low APR. Consumers are lured to wire funds (oftentimes to Canada) through newspaper and internet advertisements.
Advertisement – Posters, signs, television commercials, radio spots, and other media that businesses use to promote products or services.
Adjustable Rate Loans – (also known as variable-rate loans), usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; when interest rates fall, your monthly payments may be lowered
Amortization – The reduction of debt by regular payments on interest and principal sufficient to pay off a loan by maturity.
Annual Percentage Rate (APR) – the cost of borrowing money on a yearly basis, expressed as a percentage rate.
Appraisal – A written estimate of the value of a home.
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Balloon Payment – A final payment on a debt that is substantially larger than the preceding payments.
“Blue Book” Price – the price of a used car as measured by a quality index of many similar vehicles. Various publications (now available for free on the internet) disclose used vehicle values.
Buy Down – A method of lowering the interest rate on a mortgage, either temporarily or for the entire term of the loan. Permanent Buydowns require the payment of points at closing, while Temporary Buydowns require the payment of a lump-sum interest payment up front which can subsidize the mortgage payments over the first one to three years of the loan.
Buy Here, Pay Here Financing – is usually associated with used car dealers. Installment payments, often made weekly, are paid directly to the dealership, which provides private financing (sometimes at a high cost/APR) for the vehicle.
Buyer's Agent – This is the real estate broker that represents the buyers. They will make appointments to show you properties and help you to negotiate the terms of your home purchase.
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Cap – To prevent excessively high payment increases, place a cap on the amount by which the interest rate may rise at any single adjustment, over the life of the loan, or both.
Closing or Settlement – The meeting between the seller, buyer and closing attorney when the property legally changes hands, the transaction is legally closed, or both.
Closing Costs or Settlement Fees – Fees paid to effect the closing of a mortgage. (Such as points, title fees, survey fees, etc.)
Closing Statement or Settlement Statement – This is a document prepared by the Title Company that details the final and specific costs involved for both the buyer and seller in a real estate transaction.
Collateral – Property, such as stocks, house, bonds, bank account, or a car, offered to secure a loan and which is subject to seizure if you default. See also security.
Combined Loan-to-Value ("CLTV") – The relationship of the outstanding balances of a first and second mortgage to the value of the home used to determine the maximum percentage of value which may be lendable (1st mortgage amount plus second mortgage amount divided by value or sales price.)
Commitment – An offer to grant a mortgage loan which outlines the terms, the amount of the loan, the interest rate and any conditions that thecommitment or approval is subject to.
Conforming Loan – A loan which meets all requirements to be eligible for purchase or securitization by FNMA or FHLMC (Fannie Mae or Freddie Mac) which has a loan amount below the level deemed to be the limit for "Jumbo" loans.
Consumer – Any natural person obligated or allegedly obligated to pay a debt incurred for personal, family or household use.
Consummation – The point in time when the contractual relationship between borrower and lender begins.
Cosigner – An individual who signs a loan, credit account, or promissory note of another person as support for the credit of the primary signer and who becomes responsible for the debt obligation.
Conventional Mortgage – A mortgage loan which is not insured or guaranteed by a government agency such as FHA or VA.
Construction Loan – A short-term, interim loan that provides disbursements to facilitate the construction of a home. Funds are disbursed at intervals as work progresses.
Credit – Borrowing money, or having the right to borrow money, to buy something.
Credit Bureaus – Also known as “consumer reporting agencies,” are companies that compile credit reports, and supply credit information to businesses upon request.
Credit Card – A plastic card with a magnetic stripe that is used from time to time or over and over again to borrow money or buy goods or services on credit, and which offers the ability to make partial payments toward the balance owed.
Credit Life & Disability Insurance – Insurance offered to loan and credit card customers that will pay the monthly payments on their debt if they become disabled or the balance of their debt if they die before completing their payments. Lenders may not require this coverage as a condition of granting a loan request.
Credit Pre-Approval – A process in which an individual can apply for a credit approval decision before he/she actually finds a home and enters into a Purchase and Sales Agreement.
Credit Report (Consumer Report) – A summary of your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Lenders use these reports to help them decide if they will loan you money and what interest rates they will offer you. Other businesses might use your credit reports to determine whether to offer you insurance; rent a house or apartment to you; or provide you with cable TV, Internet, utility, or cell phone service. If you agree to let an employer look at your credit report, it may also be used to make employment decisions about you.
Credit Score – A number created from a scoring model that uses information from your credit history to summrize your credit-worthiness.
Credit Service Organization – See loan broker.
Cure – To bring your credit account current by paying all past due accounts.
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Data Breach – The unauthorized movement or disclosure of sensitive information to a party, usually outside the organization, that is not authorized to have or see the information. Someone who gets the data might use it for identity theft.
Debit Card – A plastic card, which looks similar to a credit card, that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers. Funds are immediately drawn from the consumer's checkingaccount directly and simultaneously.
Debt – Money owed to another person or business.
Debt Consolidation – When various debts, whether they are credit card bills or loan payments, are rolled into a new loan with one monthly payment. If you have multiple credit card accounts or loans, consolidation may be a way to simplify or lower payments. But a debt consolidation loan does not erase your debt. You might also end up paying more by consolidating debt into another type of loan.
Debt-to-Income Ratio – A measure of creditworthiness computed by dividing the dollar amount of monthly debts by total gross monthly income, then converting the result to a percentage.
Deed – The legal document that is used to transfer the title from one owner to another.
Default – Failure to repay a loan or otherwise meet the terms of your credit agreement. A loan that is one day late is technically “in default”.
Disclosures – Information that must be given to consumers about their financial dealings. Disclosures associated with consumer credit include: APRs, finance charge, monthly payment amount, total of payments, and the amount of payments.
Discount Points – Amount paid to the lender by the borrower or seller to decrease or "buy down" the borrower's interest rate. One point is equal to one percent of the loan amount.
Divorce Decree – legal ruling by a court which, among other things, assigns obligations for the payment of various debts. Any debts held jointly may be primarily assigned by the decree to one party; however, despite the judge's order, the other party still remains legally liable on the debt to the creditor.
Down Payment – An initial cash payment made when something is bought on credit, such as a home or vehicle. The down payment reduces the amount of money that is borrowed.
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Escrow Account – An account that serves a specific purpose, which ends when a certain condition is met or a certain event occurs.
Equity – The difference between the current market value of a property and the total amount of outstanding liens against the property.
Escrow Account – This is an account where a portion of a borrower's mortgage payment is set aside to pay for real estate taxes and homeowner's insurance. The lender then automatically pays municipal taxes and homeowner's insurance directly from this interest-paying account when necessary.
Escrow Account – Borrower's application-related fees (not including third-party fees for appraisals, titles searches and credit reports) must be set aside in the mortgage broker's special escrow/trust account. If the borrower rescinds the transaction, these fees must be returned to the applicant.
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FAFSA - Free Application for Federal Student Aid – The Free Application for Federal Student Aid form is used to determine how much a student and his or her family are eligible to receive in federal financial aid. The FAFSA may also be used to determine a student’s eligibility for state and school-based aid and also may influence how much private aid a student receives.
Fair Credit Reporting Act ("FCRA") – A federal law supplemented by Maine law, which gives rules and regulations governing credit bureaus and credit reports.
Fair Debt Collection Practices Act ("FDCPA") – A federal law supplemented by Maine law, which gives rules and regulations governing debt collectors.
Federal Student Loans – These loans are funded by the federal government and have terms and conditions that are set by law. Federal loans also include benefits that private student loans don’t usually offer. These benefits could include lower interest rates, repayment plans based on income, and possible loan forgiveness for people who choose to work for a certain amount of time in government or for certain not-for-profit organizations or teach in a low-income school.
FHA – Federal Housing Authority, also known as HUD (Department of Housing and Urban Development). The Federal Housing Authority is a federal entity that governs the FHA mortgage program, which is a low down-payment mortgage program with flexible credit and qualifying guidelines.
Finance Charge – The cost of interest and other charges involved in borrowing money.
Financial Aid – Money given in the form of grants, work-study, loans, and scholarships to help pay for post-secondary tuition and fees, as well as related expenses such as room and board, books, supplies, and transportation.
Fixed Rate Mortgage – A mortgage in which the interest rate and monthly payments of principal and interest remain the same for the life of the loan.
Floating – The process of an applicant deciding against locking-in an interest rate at the time of application and instead electing to float with the market until a later date at which time he/she will request the mortgage company to lock-in the interest rate at the prevailing rate.
Fraud - An illegal act that occurs when people try to trick you out of your personal information and your money.
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Grace Period – The number of days you have to pay your bill in full before finance charges start. Without this period, you may have to pay interest from the date you use your card or when the purchase is posted to your account.
Grant – A type of financial aid that does not have to be repaid, unless, for example, you withdraw from school and you need to pay back some of the grant money; often need-based.
Gross Income – Total pay before taxes and other deductions are taken out.
Guaranteed Asset Protection (GAP) Waiver – A debt cancellation agreement that you can add to an auto loan. GAP waivers release the borrower from having to pay the difference between their remaining loan balance and the car’s actual cash value if the vehicle get totaled.
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Hazard Insurance/Homeowners Insurance – Insurance coverage that provides compensation to the insured in case of property loss or damage.
Home Equity Loan – A form of open-end credit in which the home serves as the consumer's collateral.
Home Inspector – You hire and pay for this individual to analyze the home's physical condition before you buy it.
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Identity Theft – The theft of personal and/or financial information that identifies the consumer, and which is often used to apply for credit in their name. For instance, a thief may obtain your name and social security number and open accounts in your name. Consumers who are victims of identity theft have several protections available. For more information on identity theft, CLICK HERE.
Income – Money earned or received such as wages or salaries, tips, commissions, contracted pay, government transfer payments, dividends on investments, tax refunds, gifts, and inheritances.
Index – The factor that a particular interest rate is directly related to, some common indexes are the One Year Treasury Bills, LIBOR, and the prime lending rate.
Interest – A fee charged by a lender, and paid by a borrower, for the use of money. A bank or credit union may also pay you interest if you deposit money in certain types of accounts.
Interest Capitalization – Interest capitalization occurs when unpaid interest is added to the principal amount of your student loan. When the interest on your federal student loan is not paid as it accrues (during periods when you are responsible for paying the interest), your lender may capitalize the unpaid interest. This increases the outstanding principal amount due on the loan. Interest is then charged on that higher principal balance, increasing the amount of interest charged and the overall cost of the loan.
Interest Rate – A percentage of a sum borrowed that is charged by a lender or merchant for letting you use its money. A bank or credit union may also pay you an interest rate if you deposit money in certain types of accounts.
Investor – Any person or institution that invests in mortgages or mortgage-backed securities.
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Jumbo Loan – A loan that exceeds the statutory size limit eligible for purchase or securitization by either FNMA or FHLMC.
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Lend – The act of giving something to someone with the understanding that they will give it back to you.
Lender – An organization or person that lends money with the expectation that it will be repaid, generally with interest.
Liability – Something that is a disadvantage, money owed, or a debt or obligation according to law.
Liable – Responsible or answerable by law; legally obligated.
Liquidity – A measure of the ability and ease with which you can access and use your money.
Listing Broker – This is the real estate broker that represents the sellers. They will market the property to bring buyers, which in turn bring offers to the seller.
Loan – Money that needs to be repaid by the borrower, generally with interest.
Loan Origination fees – Fees charged by the lender for processing the loan and which are often expressed as a percentage of the loan amount.
Loan Broker – An organization that provides (or offers to provide) the service of improving your credit record, obtaining a loan for you, or providing advice or assistance with either of these services, in return for payment. See Loan/Mortgage Broker Section.
Loan Term – The period of time between the start date and the termination date of a note or mortgage.
Loan-to-Value Ratios ("LTV") – The ratio of mortgage amount to value or sales price of a home. (Mortgage amount divided by value or sales price.)
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Margin – Percentage added to an index by a loan company to determine the interest rate; often used in conjunction with ARMs.
Maturity Date – The date that an investor’s investment is to be paid back in full in accordance with its agreement. A certificate of deposit (CD) contains a maturity date provision obligating the financial institution to repay an investor sums invested plus interest on a specified date.
Military Lending Act (MLA) – A federal law that provides special protections for active duty servicemembers, like capping interest rates on many loan products. MLA includes servicemembers on active Guard or active Reserve duty, as well as spouses and certain dependents.
Minimum Payment – The minimum dollar amount that must be paid each month on a loan, line of credit, or other debt.
Money – You can use money to buy goods and services. Money looks different in different places around the world.
Mortgage – Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.
Mortgage Company (Supervised Lender) – A Supervised Lender is any person authorized to make or take assignments of supervised loans either under a license issued by the Bureau, or as a supervised financial organization. Our office only regulates non-bank mortgage companies that are required to be licensed with this office. The Maine Bureau of Financial Institutions regulates supervised financial organizations (banks, credit unions, savings & loans).
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Net Income – Amount of money you receive in your paycheck after taxes and other deductions are taken out; also called take-home pay.
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Open-ended credit – A plan in which the creditor anticipates repeated transactions, and for which there is a finance charge computed on any unpaid balance.
Origination Fee – The fee lenders charge to borrowers to prepare documents, process and close the loan. It is usually stated as a percentage of the loan. In some cases, it may be charged to offset the interest rate, also referred to as a point.
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Pest Inspection – Required for FHA loans in some areas to determine if there is an infestation of wood-boring insects or other pests in the home.
PITI – Acronym for items included in a monthly mortgage payment: principal, interest, taxes and insurance.
PMI – Also called Private Mortgage Insurance. Insurance provided by private institutions to help lessen the risk of loss on certain loans.
Points and Origination Fees – Fees paid to the lender for the loan. One point equals 1 percent of the loan amount. Points are usually paid in cash at closing. In some cases, the money needed to pay points can be borrowed, but doing so will increase the loan amount and the total costs. An origination fee covers the lender’s work in preparing your loan.
Prepayment Penalty (Mortgages) – A charge assessed by a creditor when the consumer pays off all or part of the loan before it is due. They are permitted on fixed-rate, first-lien mortgages, but prohibited on adjustable-rate and second-lien loans.
Principal – In a lending context, principal is the amount of money that you originally received from the lender and agreed to pay back on the loan with interest.
Private Mortgage Insurance ("PMI") – Protects the lender against a loss if a borrower defaults on the loan. It is usually required 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.
Private Student Loans – These loans are from private organizations, such as banks and credit unions, which set their own terms and conditions. Private loans are generally more expensive than federal loans.
Processor – A person who acts as a liasonbetween your Loan Officer and the Underwriter to help facilitate the flow of paperwork which takes you from loan application to loan closing. Verifies info in the file, orders appraisals, title searches, flood certifications, collects loan approval conditions, coordinates the closing instructions with the Title Company.
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Rate Lock – The period of time that a mortgage company will guarantee a loan's interest rate, usually 30 or 60 days. Longer rate locks are sometimes available at higher costs.
Rate of Return – The profit or loss on an investment expressed as a percentage.
Repayment – Paying back money you borrowed.
Rescission – The cancellation, or "tearing-up," of a contract. Some consumer loans (home mortgages) feature a 3-day right of rescission during which the borrower can cancel the loan without penalty.
Recording Fees – Charged by the Registry of Deeds for the filing of documents or details of a legal document to make them a matter of public record. Usually requires the witnessing and notarizing of the documents to be recorded.
Refinance – The repayment of a debt from the proceeds of a new loan using the same property as security.
Return – The profit or loss on an investment.
Rural Development – The "Rural Development" mortgage program is governed by the USDA and is designed to promote homeownership in rural areas.
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Security – Property pledged to the creditor in case of a default on a loan; collateral.
Security Interest – The creditor's right to take property or a portion of property offered as security.
Student Aid Report – A paper or electronic document that gives you some basic information about your eligibility for federal student aid and lists your answers to the FAFSA questions.
Student Loan Servicer – A company that collects payments on student loans, tracks loans while borrowers are in school, responds to borrowers' questions, and handles other tasks associated with loans.
Supervised Lender – A person authorized to make or take assignments of most consumer loans and residential mortgages, either under a license issued by the Administrator (section 2-301), or as a supervised financial organization (bank or credit union)(1-301, subsection 38).
Supervised Loans – Consumer loans, including loans made with open-end credit, in which the finance charge is greater than 12.25% per year, or which are secured by and interest in real estate.
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Telemarketing Fraud – Unsolicited telephone call from a criminal who tries to trick the consumer into disclosing personal information (bank account number, credit card number, or social security number.)
Term – A fixed or limited period of time for which something lasts or is intended to last (for example, a five-year loan, a three-year certificate of deposit, a one-year insurance policy, a 30-year mortgage).
Third Party Fees – Fees you pay up front for a mortgage broker to pay to another party, such as to obtain a credit report, order an appraisal, or to do a title search.
Title – The right to ownership in real estate, which is transferred by a deed. Evidence of ownership in real estate.
Title Insurance – A contract by which the insurer (commonly referred to as a "Title Company") agrees to pay the insured a specified amount for any loss caused by defects of title to real estate.
Title Search – The process of checking records relating to the title to see that it doesn't have any liens, mortgages, encumbrances or other claims against it that would keep it from being transferred
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Unauthorized Use – Transactions to your ATM, debit, or credit card that you didn’t make or approve (such as withdrawals, transfers, purchases, or charges) and for which you received no benefit.
Underwriting – The analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the mortgage company. Underwriting involves the evaluation of the property as outlined in the appraisal, the borrower's ability to repay the loan, the borrower's creditworthiness and the application of criteria specified by investors to whom the mortgage company might sell or transfer mortgages.
Unsecured Loan – A loan (such as most types of credit cards) that does not use property as collateral. Lenders consider these loans to be more risky than secured loans, so they may charge a higher rate of interest for them. If the loan is not paid back as agreed, the lender can also start debt collection, file negative information on your credit report, and might sue you.
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VA – The Department of Veterans Affairs ("VA") will insure certain government mortgages that are provided to Veterans of the U.S. Military, thereby allowing these loans to be written with more relaxed underwriting criteria than might be required otherwise. VA does not guarantee a mortgage approval, though. The applicant still is required to qualify based upon his/her overall picture of creditworthiness.
Value – The amount of money that something is worth.
Variable-Rate Loan – See Adjustable Rate Loans.
Virtual Currency – A digital representation of value that is not issued by a government, such as a central bank or a public authority, but is accepted as a means of payment and can be transferred, stored, or traded electronically.
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Waiver – Giving up a legal right or advantage voluntarily.
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