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Debt Glossary - An appendix of most common financial terms

Glance through the most common financial terms in an alphabetical order.

Popular Terms


Annual Percentage Rate (APR)

The annual percentage rate is calculated by including all charges/fees associated with the loan along with the actual rate of interest. It helps in determining the actual cost of the loan. Therefore, it can be effectively used by the borrower in comparing the cost of borrowing.

Amortization

It describes the distribution of the monthly installments between the principal and interest paid towards the repayment of the loan within a fixed period. The initial allotment towards the interest payment remains high and gradually declines as the principal loan balance declines.

Bankruptcy

It is the legal procedure which releases a loan defaulter of his debts when he can't meet the loan obligations. The defaulter's assets then can be liquidated by the court trustee in order to meet his financial obligations and to give him a fresh start. However, bankruptcy affects the credit negatively and stays on the credit report for seven- 10 years.

Credit Counseling

It educates the consumers about the dangers of incurring too much debt. It also helps the consumers to manage their debt load through an effective management plan.

Debt consolidation

It helps the debtor in merging all his unsecured loans and bills into one monthly payment. The debt consolidation loan has longer repayment tenure but lower interest rate.

Debt Settlement

It helps debtors in reducing their debts by a certain percentage through negotiation with the creditors. It is also known as debt negotiation, debt arbitration or credit settlement.

Debt Management

It is a repayment plan that helps debtors to pay the unsecured debts comfortably. Generally, a third party negotiates with the creditors on behalf of the debtors to make their monthly payments affordable.

Fair Debt Collection Practices Act (fdcpa)

This act safeguards customer's interests, such that collectors refrain from using abusive methods while collecting debts.

Foreclosure

It is a legal process in which the lender takes possession of the mortgaged property when the borrower fails to meet the contractual obligations and defaults on the loan as well. A foreclosure stays on a credit report for 7 years.

Interest

It is the amount charged by the lender for allowing the borrower to use the money for a time period.

Principal

The total amount of a loan, not including any capitalized fees or interest.

A


1 year adjustable (ARM):

It is a type of adjustable rate mortgage for which the interest rate and monthly payment change every year for the entire tenure of the loan.

A-credit:

This is the best credit rating that the customer can have. Higher score normally reduces the cost of borrowing.

Acceleration Clause:

It allows the lender to actually accelerate the repayment schedule of the loan. It's normally exercised when the borrower breaches any clause of the loan agreement. The lender can demand immediate payment of the loan under the accelerated clause.

Accrued interest:

This is the interest that keeps accumulating on the unpaid principal balance of the loan. The interest amount keeps mounting till the final payment of the principal.

Adjustment interval:

This is the time period during which the monthly payment towards the mortgage remains constant before the next change in the interest rate and monthly payment in an adjustable rate mortgage (ARM) loan.

Affordability:

It is the evaluation of your purchasing power as a customer based on the criteria set by the lender.

Agreement of Sale:

It describes the terms and conditions of a home sale along with the price and is signed both by the buyer and the seller.

Alternative documentation:

Income verification that is done without verifying the tax return but by simply looking at documents like pay-stubs, W-2 Form and bank statements. This is done without depending on third parties to confirm the statements made on the application.

Amount financed:

Helps in determining the annual percentage rate. It's calculated by subtracting any prepaid charges from the loan amount and assuming that the loan would not be prepaid.

Amortization:

It describes the distribution of the monthly installments between the principal and interest paid towards the repayment of the loan within a fixed period. The initial allotment towards the interest payment remains high and gradually declines as the principal loan balance declines.

Annual fee:

It's typically charged on the credit card user once in a year to allow him/her continue with the credit benefits. This fee is applied towards the administrative costs of the credit card.

Actual rate of interest:

The rate of interest at which the loan is locked in. The actual rate of interest determines your monthly payments towards the loan. It is also known as Note Rate.

Annual Percentage Rate (APR):

The annual percentage rate is calculated by including all charges/fees associated with the loan along with the actual rate of interest. It helps in determining the actual cost of the loan. Therefore, it can be effectively used by the borrower in comparing the cost of borrowing.

Application:

It's an initial form containing personal and financial information that is needed to be submitted by the borrower to the lender at the time of receiving the loan.

Application Fee:

It is charged by the lender to the borrower to cover the initial costs of processing the loan. It may include costs for property appraisal, pulling the credit report and other expenses.

Appraisal:

It's a written estimate of the value of the property as determined by a qualified appraiser. The property has to be appraised before a mortgage loan is offered to a homebuyer/borrower to learn the true value of it. Normally a fee would be attached to it by the lender and charged against the borrower.

Appraisal fee:

Appraisal fee is charged for appraising the value of the property that acts as the collateral for the mortgage. The fee is normally paid by the buyer.

Asset:

An asset can be anything of monetary or exchange value as owned by an individual, business or institution. An asset can be real estate property, personal property, saving and investment such as bank accounts, stocks, mutual funds and the like.

Assignment:

Describes the transfer of ownership rights and interest on a property from one party to another. The two parties involved in this process are the assignor and the assignee respectively.

Assignment recording fee:

After mortgage loan closing the lender may give the right to collect payments against the loan to a third party. The assignment recording fee is charged by the local recording office which maintains the record of this transfer of rights.

Assumption:

Is an agreement between the buyer and seller where the buyer takes over the existing mortgage from the seller. The original borrower however remains liable for repayment as per the mortgage agreement.

Average Daily Balance:

Refers to the average balance in an account maintained over a period of time. It's calculated by totaling the daily balance over a period and then dividing the amount by the number of days in the period. It helps in calculating the interest rate.

Affordable Gold 5:

When the mortgage taken is worth 95% of LTV (Loan to Value) ratio and the remaining 5% is paid by the borrower out of pocket it is known as Affordable Gold 5.

Adjustment date:

It refers to the date on which the interest rate on an adjustable rate mortgage (ARM) loan is changed.

Arbitration:

It refers to the process of resolving a dispute with the help of an independent third-party. Several lenders include arbitration clause in the loan contract.

Account balance:

It refers to the net amount in a financial account on a specific date.

Authorized user:

An authorized user is a person whom you have authorized to use your credit card. He can use your credit card for making financial transactions with his name on it without having the liability to repay the credit card balance.

B

Backup Offer:

At the time of property dealing the backup offer is presented when the parties don't agree upon the first offer. However the second offer has to be accepted.

Balance:

The balance on the loan is calculated by subtracting the amount already paid from the amount owed by the borrower.

Base loan amount:

It describes the amount that is originally lent to the customer and based on it the payment gets determined.

Bank draft:

It defines the written instruction to the bank employee to clear the fund to the individual or business named on the draft.

Bankruptcy:

It is the legal procedure which releases a loan defaulter of his debts when he can't meet the loan obligations. The defaulter's assets then can be liquidated by the court trustee in order to meet his financial obligations and to give him a fresh start. However, bankruptcy affects the credit negatively and stays on the credit report for seven- 10 years.

Bequest:

It's the process of transferring personal property upon the donor's death to the named individual or organization as directed in the will.

Billing Error:

If error occurs in your monthly financial statement, it's called a billing error as per the FCBA or Fair Credit Billing Act.

Bona Fide:

[x] ItUndertaken in good faith.

Borrower:

The borrower is the person who borrows money and is obligated to pay it back to the creditor on terms stated in the lending contract.

Broker:

The broker is an individual who assists in arranging for funds and also negotiates contracts for a client. The broker earns in terms of commission from the deal.

Budget:

It's the record of personal income and expenses within a specified time period.

Business days:

These are the special days allotted under the Truth in Lending Act or Electronic Fund Transfer Act to conduct business transactions.

Buyer's market:

It's a market condition when the terms of trade are more favorable to the buyers due the availability of large number of sellers. In such a condition the seller may need to make price adjustment to attract buyers.

Balloon mortgage:

In this type of mortgage the payment remains constant for certain period and the entire mortgage becomes due upon the expiration of the term. It is ideal for people who consider refinancing before the fixed rate period expires.

Bi-Monthly Mortgage Payments:

It allows the borrower to pay mortgage installment in every two weeks instead of a single large payment every month. It helps towards faster repayment of the mortgage.

Blanket Mortgage:

Blanket mortgage is taken to cover more than one property under a single loan. This is done to avoid the cost of multiple closing.

Bridge Loan:

Bridge loans are forwarded to a homebuyer who wants to purchase a new home before selling his/her existing one. In this case, payments for both the bridge loan and the new mortgage would be incorporated into single mortgage payment.

Bailiffs:

[x] They are recruited by the court to enter your property and sell the goods at auction to recover the debt you owe to a lender/creditor. This occurs when the lender/creditor has received a county court judgment and you have failed to pay it off.

Bill consolidation:

It helps to consolidate all your bills into a single debt. Under this program, the interest rates on the bills are reduced and late fees are waived off.

Bank rate:

It is the rate at which a central bank lends money to its member banks.

Balance transfer fee:

A consumer is required to pay this fee when he transfers a debt balance from a high-interest credit card to a low interest card.

Balance transfer:

It refers to the transferring of a debt balance from one credit card to another. Generally, consumers transfer debt balances from high interest credit cards to low or 0 interest credit cards.

Bi-weekly mortgage:

It refers to a mortgage payment plan where the borrowers are required to make payments toward the principal and interest twice a month.

Billing statement:

It refers to a periodic statement that is sent by the companies to their customers. The statement lists the financial transactions made to a credit account by the customers within a billing period. It also itemizes account charges, payment duedate,etc.

Back-end ratio:

It refers to the percentage of a borrower's gross monthly income that will go towards the debt expenses. Lenders look at this ratio before offering mortgage to the borrowers.

Bad debt:

It refers to those debts or investments that will not generate cash flow in future. Credit card debt is an example of bad debt.

Bankrupt:

It refers to the state of being financially insolvent. Generally, an individual, business or corporation is declared bankrupt by a court proceeding.

Buydown:

It occurs when the lender cut backs the interest rates on the fixed rate mortgage for a short period of time or the entire life. Normally, lenders reduce interest rates when borrowers make a lump sum payment on a loan.

Business bankruptcy:

It is the legal process by which a commercial entity or business declares that it is unable to pay off the outstanding balances.

C

Cash-out Refinance:

In cash-out refinancing, the new loan amount exceeds the existing mortgage and thus leaves the borrower with some extra cash.

Closing:

Collateral:

It is the asset or the property against which the loan is offered. The lender is authorized to seize the collateral if the borrower fails to repay the loan.

Commitment:

It is the written document which describes the terms and conditions under which the loan was offered the lender to the borrower.

Cosigner:

A cosigner signs the loan document along with the borrower and assumes the responsibility of paying off the debt when the borrower defaults.

Credit:

It's a particular sum of money that is borrowed and becomes payable at a future date. Interest accrues on the amount over the period of the loan and the total sum of principal and interest become payable at the time of repayment.

Credit Bureau:

It is a private organization which collects and maintains information on individual's credit repayment history and supplies the same to creditors and banks upon request.

Credit card:

It offers the user a revolving line of credit and enables the user to purchase good and services without paying money upfront.

Credit history:

The overall record of your credit transactions. It shows the amount of money you borrowed, the lenders you have dealt with and the status of the accounts.

Credit limit:

It depicts the maximum amount that the customer can charge on his/her credit card.

Credit Ratio:

It represents the total installment payable in a month, expressed in terms of the net income of the debtor.

Credit Report:

The credit report consists of your personal credit history and updated financial position. Based on your credit history you'll get the credit score which helps in determining your credit worthiness.

Credit reporting company:

These companies compile information on your credit payment history. Creditors voluntarily submit updates to these companies and access the same when needed.

Credit Scoring System:

It is the statistical method which takes into account factors mentioned in the credit report to calculate the credit score of an individual.

Creditor:

Individuals and business organizations who lend money to consumers and earn in terms of interest.

Credit insurance:

Credit insurance helps in repaying the debt of the borrower in the event of his death, accident or disability.

Creditworthiness:

It describes risk of lending money to a consumer.

Consumer:

A person who purchases material goods for his personal use.

Consumer credit counseling service (CCCS):

These organizations help consumers in repaying debts through money management and well planned budgeting. These organizations operate in non-profit mode and are mainly funded by the creditors.

Credit repair companies:

These companies help customers in removing negative information from their credit report and improving their credit scores.

Credit grantor:

It is the individual or business which assumes risk of lending money or valuable property.

Credit type:

Credit type is correlated to your credit repayment history. If you have been timely with your repayments then you may get good rates, which would put you in the 'good' credit type.

Charge off:

It occurs when the lender considers a debt as uncollectible and reports it as loss for accounting purposes.

Credit Counseling:

It educates the consumers about the dangers of incurring too much debt. It also helps the consumers to manage their debt load through an effective management plan.

Chapter 7 Bankruptcy:

This type of bankruptcy helps the debtors to discharge their debts within 3-4 months through liquidation. The money collected from the selling of debtor's non-exempt properties is distributed amongst the creditors as per their individual share.

Chapter 9 bankruptcy:

This type of bankruptcy is designed for the financially insolvent municipalities. Under this bankruptcy, the insolvent municipality is allowed to negotiate a repayment plan with its creditors.

Chapter 11 Bankruptcy:

This type of bankruptcy is designed for the businesses or corporations. Chapter 11 helps the businesses to pay off their debts through a court monitored repayment plan.

Chapter 12 bankruptcy:

This type of bankruptcy is specially designed for the financially insolvent fisheries and farms. Under this bankruptcy, the fishery or farm owner can negotiate a payment plan with the creditors and bankruptcy trustee.

Chapter 13 Bankruptcy:

This type of bankruptcy helps the debtor to reorganize his/her debts and repay it within 3-5 years. With this type of bankruptcy, debtors can retain their properties.

Credit file:

It refers to the file containing a consumer's financial history. This file is usually kept by authorized companies.

Checking account:

It refers to an account where the consumers can deposit and withdraw funds. Generally, banks allow consumers to open these accounts if they fulfill certain criteria.

Commercial mortgage:

It refers to a mortgage designed for the real estate investors. Generally,these mortgages are used by the investors to purchase a commercial property.

Commercial property:

It refers to a real estate that is used for business purposes. Retail centers, industrial complexes, etc are few examples of commercial property.

Community property:

It refers to a property that is joined owned by a married couple after securing it during their marriage.

Credit check:

It refers to the process of evaluating a loan applicant's credit/debt payment history. This helps the lenders determine whether the applicant is a responsible borrower.

Capital:

It refers to the cash or property that is used to generate revenue by investing in a business.

Creditor meeting:

This meeting is attended by the bankrupt debtor, his creditors and the US trustee. This meeting is also known as 341 meeting. It takes place several weeks after the bankruptcy petition has been filed in the court.

Credit union:

It is basically a non-profit financial organization that is created and operated by its members. It offers deposit and lending services to its members.

Credit rating:

It is the evaluation of an individual's or organization's credit worthiness. The assessment is done on the basis of the person's or firm's financial history, existing assets and liabilities.

Consumer bankruptcy:

It occurs when a consumer files bankruptcy to get rid of debt and make a fresh financial start.

Consumer debt:

It is the debt incurred by an individual for purchasing consumer goods and services.

Credit squeeze:

It refers to an economic situation where the availability of loans is drastically reduced. It happens when banks and financial institutions tighten lending terms and conditions. It is also known as credit crunch or credit crisis.

Credit Risk:

It refers to the risk of creditor's loss due to a debtor's non-repayment of debt. Basically, it is the measurement of an individual's credit worthiness.

Credit analysis:

It refers to the assessment of the credit worthiness of a potential borrower.

Credit analyst:

It refers to a person who analyses a potential borrower's credit worthiness and the capacity to repay the proposed loan.

Credit monitoring service:

It informs consumers about specific changes in their credit file. The service helps the consumers spot any signs of identity theft or credit scam before their credit history is ruined.

Collection agency:

It refers to an agency that collects past due debts on behalf of creditors/lenders, individuals, or business.

Consolidation loan:

It refers to a loan that pays off several smaller loans. This loan is offered by banks and financial institutions and has to be repaid within a certain period. The interest rates on these loans are normally lower than that of the credit cards.

Consolidation program:

It refers to a program where the counselors of the debt consolidation company negotiate with the creditors to cut back the interest rates on the loans on your behalf. However, they do charge a fee for their services.

Cash advance:

It refers to the total amount of cash borrowed by a consumer against his/her credit limit.

Cash advance fee:

It refers to the fee that a consumer has to pay at the time of taking out a cash advance against his/her credit limit.

Charge card:

It is basically a credit card without any credit limit. However, consumers are required to pay the entire balance at the end of each month..

Credit crunch:

It refers to that period of time when it is very difficult to obtain credit,or it has become extremely costly, or both.

D

Debt consolidation:

It helps the debtor in merging all his unsecured loans and bills into one monthly payment. The debt consolidation loan has longer repayment tenure but lower interest rate.

Debit card (EFT Card):

It is a plastic card that allows the customer to withdraw money or make purchases against his/her bank. However, unlike credit card users, one needs to have money in the account for using debit card.

Debt-to-Income Ratio:

It expresses the monthly debt payment as a proportion of gross monthly income. It reflects an individual's indebtedness.

Deed:

It is a legal document that acts as proof of a property transfer between two parties. It records the description of the property, its price and also contains the signatures of the parties involved in the transaction.

Deed of Trust:

In some states, mortgage is known as deed of trust. The title remains with the third party till the owner repays the debt in full.

Default:

The debtor is said to be in default when he/she fails to meet his/her obligation to pay the debt.

Deferred interest:

It occurs when the monthly payment isn't enough to cover the interest on the loan. The unpaid interest gets accumulated and eventually gets added to the original balance. This is known as negative amortization.

Delinquency:

It occurs when the borrower misses payments within the repayment period stated in the loan agreement.

Disclosures:

These are documents through which the details of financial transactions are revealed to the customer.

Discount points:

It is the additional amount paid to the lender by the borrower to lower the interest rate on the mortgage. Discount points are specifically associated with government-backed loans such as FHA and VA. One discount point equals one percent of the loan amount.

Document preparation fee:

It is charged by company or the lender to prepare the paperwork for loan closing.

Due-on-sale clause:

It allows the lender to claim immediate full payment on a mortgage or deed of trust when the ownership of the property changes.

Debt Settlement:

It helps debtors in reducing their debts by a certain percentage through negotiation with the creditors. It is also known as debt negotiation, debt arbitration or credit settlement.

Debt Management:

It is a repayment plan that helps debtors to pay the unsecured debts comfortably. Generally, a third party negotiates with the creditors on behalf of the debtors to make their monthly payments affordable.

Debt collection agency:

Creditors may assign or sell your account to a collection agency when you are unable to pay off the debts. Generally, they function as agents of creditors and collect owed money for a fee or percentage of the entire debt amount.

Deficit:

It happens when your expenses exceed your income. Curtailing your expenses or increasing your income can help you in reducing deficit.

Debt counseling:

It educates consumers about the disadvantages of incurring excessive debts. Debt counselors help consumers to get out of debt through a smart budget.

Debt reduction:

It refers to the process of reducing debt burden.Debtors can reduce debt through self repayment plans or debt relief programs.

Debt calculators:

These are tools that help debtors calculate their total debt amount and find out how much they can save through debt relief programs.

Delinquent mortgage:

It happens when the borrower is unable to make his mortgage payments as per the terms and conditions of the loan.

Due date:

It refers to the date by which loan/bill payments have to be made.

Disposable income:

It is more commonly known as disposable personal income. It refers to the amount of one's income that is left after paying the taxes. An individual can use this amount for saving and spending.

Debt deflation:

It occurs when the value of the collateral against which a loan has been secured declines. It is also known as "collateral deflation" or "worst deflation".

Debt service:

It refers to the total payments of interests and principal due on a debt/loan.

Debt security:

It refers to the security underlining a loan issued by a lender to the borrower/recipient. The recipient is required to pay back the interest and principal by a particular date. Certificates of deposits, bonds, commercial paper are some examples of debt security.

Debtor-in-possession:

A debtor-in-possession is a person or business who has filed bankruptcy petition but remains in control of his property and performs the duty of a US trustee.

Discharge of bankruptcy:

It refers to the court order that terminates a bankruptcy case. The debtor is released from the legal liability of repaying creditors.

Debt counselor:

Debt counselor is a person who advises individuals to solve their debt/credit problems through effective money management and budgeting. Debt counselors are also known as credit counselors..

Deflation:

It refers to an economic situation where the price of good and services fall throughout the nation.

Daily rate:

It is better known as daily periodic rate. It is basically the interest rate imposed on your average daily balance in order to estimate your finance charge. It can be calculated by dividing annual percentage rate (APR) by total number of days in a given year.

Default rate:

It refers to the highest interest rate charged by a creditor on the consumer when he/she skips a payment or exceeds his credit limit.

Discretionary income:

It refers to the income left to the consumer after the taxes and basic expenses such as food, mortgage, and transport have been paid.

E

Electronic Fund Transfer (EFT) Systems:

It allows the customers to make hassle free payments for goods and services online with credit cards.

Earnest Money:

This is the initial deposit that is paid by the buyer to show his/her intent to buy a particular real estate property.

Equal Credit Opportunity Act (ECOA):

This law ensures that no discrimination would be made to customers based on their age, race, color, creed, religion, nationality, marital status or economic condition in the event of offering loan. Creditors are not allowed to disqualify a consumer from getting loan, based on the any of the above criteria. This law was enacted in 1974.

Equifax:

It's one of the three major credit bureaus. Creditors report payment history of a customer to Equifax and Equifax then releases this information to other creditors upon request. The other two credit bureaus are Experian and TransUnion.

Equity:

It is determined by the difference between the market value of the property and outstanding loan on it.

Escrow:

It is an uninterested third party that holds a financial instrument or property deed on behalf of the parties involved in the transaction and returns the rights upon fulfillment of the terms mentioned in the document.

Estimated Closing Fees:

To comply with the RESPA, the originator of the loan is responsible to give the borrower a Good Faith Estimate (GFE) of the fees and costs associated with the loan. The estimated closing fees amongst the lenders can vary widely but on an average, it may range between 2% to 5% of the loan amount.

Experian:

It is one of the three major credit bureaus of United States. It delivers credit information of the prospective customers to the lenders upon request.

Early withdrawal:

It refers to the withdrawal of funds from a fixed-term investment prior to the maturity date. It also refers to withdrawal of funds from a retirement savings account prior to the prescribed time.

F

Finance Charge:

It is the cost of using credit. Finance charge includes interests and other fees.

Fair Debt Collection Practices Act (fdcpa):

This act safeguards customer's interests, such that collectors refrain from using abusive methods while collecting debts.

Fair, Isaac and Company:

This company has developed the software which is now used in determining credit scores of borrowers.

Fee Simple:

It is the most popular method of determining credit score. The FICO score is developed by Fair Isaac and Co. and ranges between 300 and 850. But a score less than 620 can be termed as poor score and needs attention since based on this score the lenders would consider your loan applications. However, a score above 720 is normally considered as good.

FICO:

It is determined by the difference between the market value of the property and outstanding loan on it.

Fixed rate:

It is the interest rate that remains fixed for the entire period of the loan.

Fixed-rate Loans:

With fixed rate loans the interest rate on the loan remains unchanged and hence the customer would have to make fixed payments towards it.

Float:

The time interval between the deposit of a check in a bank and its payment.

Fixed APR:

It is the annual percentage rate that remains fixed over a given period of time.

Flexible payments:

In contrast to fixed payments, flexible payments allow the customer to make variable payments at his convenience.

Final discharge:

This document is issued at the end of bankruptcy case and states that the bankruptcy is over and you are free from your debt obligations.

Fair Credit Reporting Act (FCRA):

The Fair Credit Reporting Act is a Federal law. It requires the creditor to report accurate information about a customer's credit. Under the FCRA, customers can review their reports and also dispute inaccurate information.

Foreclosure:

It is a legal process in which the lender takes possession of the mortgaged property when the borrower fails to meet the contractual obligations and defaults on the loan as well. A foreclosure stays on a credit report for 7 years.

Federal Trade Commission (FTC):

It is a Federal agency responsible for protecting consumer rights and enforcing consumer-friendly laws like Fair Debt Collection Practices (FDCPA), Fair Credit Reporting Act (FCRA) and Fair Credit Billing Act (FCBA).

Forex:

It refers to the currency market where the buyers and sellers can conduct foreign exchange transactions from any part of the world.This market remains open for 24 hours.

Front-end ratio:

It refers to the percentage of a borrower's gross monthly income that will go towards the mortgage expenses. This is also known as housing expense ratio.

Fraud alert:

It refers to a statement on consumer's credit report that warns him or anyone going through his report that he may have been a victim of credit scam or identity theft.

G

Garnishment:

It is a legal proceeding that instructs the employer to withhold a portion or whole of an employee's wage and pay it to the creditor who has won the judgment to recover the money he owes.

Gross monthly Income:

It is the monthly income of an individual prior to any tax deduction.

Gross salary:

It is the steady income of an individual before any taxes and deductions.

Gold card:

It offers higher credit limit to the cardholder. The average credit limit on a gold card is $5, 000.

Grace period:

It is the time period after the payment due date during which you can make the bill payment without incurring any late penalty.

Guarantee:

It is an assurance of a certain outcome.

Green debt reduction:

This refers to the reduction of debt burden while saving environment simultaneously.

Green mortgage:

This type of a mortgage helps the borrowers to increase the energy efficiency of their homes. It is more popularly known as energy efficient mortgage.

Good debt:

It refers to those debts that will produce cash flow later.A mortgage loan is considered as a good debt.

Good Faith Estimate:

It is basically an estimate of the closing costs and loan terms. Generally, lenders are required to provide this document to the borrowers within 3 days of loan application.

Grants:

It refers to a financial aid or assistance which needs not to be repaid.

H

Hazard insurance:

It compensates the policyholder in the event of loss from fire, natural calamity and other mentioned perils in exchange of premium paid by the policyholder.

Home Equity Loan (HEL):

It is the loan that can be taken by the homeowner against his equity on the property.

Home Equity Line of Credit (HELOC):

It is the line of credit that is available against the equity on the property. It works more like a credit card where the credit limit is restored back to its original limit with every repayment.

Home equity:

It is the difference between the mortgage on the house and its market price.

I

Interest free:

As the name suggests, no interest is charged on interest free financial transactions. However, there certainly would be some terms and conditions that need to be met.

Introductory interest rates:

It is the initial rate on which the loan is offered to the borrower. Generally the introductory rates are lower one than the conventional rate. It is often done to attract consumers.

Impound Account:

It is also called Escrow Account. It is set up by the lender to collect the borrower's insurance premium and property taxes before time and disburse the same when due. It is done to protect the lender's interest on the property and to prevent the homeowner from missing payments.

Initial rate:

It is the interest rate charged on an adjustable rate mortgage at the time of closing.

Interest:

It is the amount charged by the lender for allowing the borrower to use the money for a time period.

Interest rate:

It is the interest charged, as a percentage of the total loan amount.

Interest rate cap:

It is the maximum interest rate that can be charged on an adjustable rate mortgage.

Interest rate disclosure:

It requires the lender to provide the borrower with a detailed description of the terms and conditions of the loan along with the rate of interest.

Interest rate arbitration:

This is where a neutral party negotiates with your creditors/lenders to reduce the interest rates on the loans. This is more popularly known as loan consolidation.

Interest-only mortgage:

In this type of a mortgage, borrowers are only required to pay the interest for a particular number of years. After that, borrowers have to pay both the principal and interest.

Investor:

Investor is a person who invests his/her money in a property, stocks, bonds, etc. to make money.

J

Joint Account:

It is a bank account which two or more people are authorized to operate.

Joint Liability:

It is when two or more people assume the responsibility of repaying a single debt.

Joint Tenancy:

It is all about two or more people sharing the ownership on a property.

Judgment:

Judgment in relation to credit and debt is the order by the court to repay the amount owed by a person to another. With the judgment in effect, creditors can garnish the debtor's account or wage till the debt is paid.

L

Late Payment:

Late payment is the payment made on a debt account after the due date has passed.

Late Charge:

It is the charge that is imposed on the payable amount when the customer makes late payment.

Lender:

It can be an individual, bank or financial institution which offers loans to consumers.

Liability:

It is the responsibility of repaying the loan along with charges and interest.

Lender Fees:

Lender fees include the charges to be paid to the lender by the borrower for a loan.

Lender Processing Fee:

The charges imposed by the lender for processing your loan application.

Lien:

Lien is the legal claim of the lender/creditor against the property of the borrower/debtor as the security for the payment of the debt. The lien holder has the right to sell the property of the debtor in case the debtor fails to pay the dues.

Loan Application:

It is the document that needs to be filled out while applying for a loan.

Loan Application Fee:

The fees that are charged by the lender for processing your loan application. It may include costs of pulling credit report, appraisal of the property and the like.

Loan consolidation:

Loan consolidation or debt consolidation is the process of replacing many loans or debts with a low monthly payment. This can be done either by enrolling in a consolidation program or by taking out a loan to pay off all your bills.

Loan Origination Fee:

The fees charged by the lender to meet the administrative costs for processing the loan.

Loan Term:

It is the time period within which the loan is required to be repaid.

Lock or Lock-In:

It is the time period during which the interest rate on the loan remains fixed.

Loan modification:

It is the process where the mortgage terms are modified to make it easier for the borrowers in making their loan payments. This is normally done by changing the loan terms, interest rates, loan balances, etc.

Loss mitigation:

It refers to a situation where the lender helps the borrower who has defaulted on a loan and is in danger of losing property to foreclosure.

M

Market value:

It refers to the price at which an asset can be expected to be sold or bought in an open market.

Minimum deposit:

It refers to the minimum amount of money necessary to open a savings or investment or mutual fund account. It may range from a few hundred to thousand dollars.

Minimum payment:

It is the minimum or smallest amount a borrower is required to pay every month on a loan or credit account for avoiding a penalty.

Mortgage:

It refers to a loan used for financing the purchase of a property, normally with certain payment periods and interest rates. The same property is held as collateral for the repayment of the loan. Mortgages can be commercial or residential.

Mortgage rate:

It refers to the interest rate that a borrower pays on a mortgage loan. This interest rate is expressed as a percentage.

Mortgage insurance:

It refers to an insurance policy that protects mortgage lenders against financial losses in the event of loan default.

Mortgage debt:

It refers to the outstanding principal amount owed under a mortgage.

Money management:

It refers to the process of managing money effectively. It comprises of savings, budgeting, spending, paying off debts, investing, etc.

Mortgage broker:

A mortgage broker is a person who acts as an intermediary between lenders and borrowers. He sells loans to the borrowers on behalf of the mortgage lenders/companies.

Mortgage calculator:

It is a tool that helps potential borrowers to determine the size of the loan amount they can afford to borrow. The calculator helps them to estimate and compare monthly payments for various mortgage loan types, terms, principal amounts and interest rates.

Minimum down payment:

It refers to the least amount of money that a borrower has to pay to secure a mortgage loan. The down payment amount may vary by loan type and from lender to lender.

Mortgage insurance premium:

It refers to the premium that a borrower pays on mortgage insurance. The premium can be paid upfront, monthly, annually depending on the loan scheme.

Mortgagor:

It refers to the borrower who takes out a mortgage loan for purchasing a piece of real estate property.

Merged credit report:

It refers to the summary of an individual's credit history from the 3 credit bureaus - Experian, Equifax, Trans Union.

N


No credit:

This refers to people with a clean credit report who did not owe any credit balance in the past. The individual must have paid off the credit with the help of a loan or credit cards.

No hassles:

A dialogue or a sales pitch that assures consumers that the individual will be rendered the best quality service.

Negative Amortization:

When a loan payment schedule does not meet up the full amount of interest due the principal amount increases. This is called negative amortization. The monthly amount which is less is added to the principal amount of the loan.

Notice of Default:

This is a written documentation send to a borrower or a debtor if there is any failure in payment on his part or if he has gone against any company policy. Through this notice the borrower is intimidated that a legal action may be taken against him.

Negative equity:

It happens when the market value of a property that is used to obtain a loan is lower than the outstanding balance on the loan

No-doc loan:

It is basically refers to no documentation loan. Borrowers can secure this loan without providing documents necessary to prove that they can repay the loan. Generally, lenders charge high interest rate on these loans

No limit credit card:

It refers to the credit card that doesn't have any credit limit.

O

Offer Expires:

This is the date of expiry of credit card validity. Even after the expiry date a consumer may enjoy certain rights which the credit card company allows him to.

Overdraft Checking:

A line of credit that allows you to write checks or draw funds by means of an EFT card for more than your actual balance, with an interest charge on the overdraft.

Origination Fee:

The amount charged by a lender or a creditor to meet the administrative costs incurred during the processing of a loan.

P

Personal Loan:

A loan that establishes the cause of consumer credit and is granted for personal use. Categorized under unsecured loans and is based on the borrower's integrity, ability to pay and an individual's credit worthiness. A borrower does not put up any collateral or security to guarantee the repayment of a personal loan thus personal loan bears high interest rates.

Point-of-Sale (POS):

A method by which consumers can pay for purchases by having their deposit accounts debited electronically without the use of checks.

Power of Attorney:

A legal document authorizing one person to act on behalf of another.

Prepayment Premium:

Money charged for an early repayment of debt. Prepayment premiums are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Prepaid Expenses:

Taxes, insurance and assessments paid in advance of their due dates. These expenses are included at closing.

Prepaid Interest:

Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.

Prepayment:

Full or partial repayment of the principal before the contractual due date.

Prepayment Penalty:

A prepayment penalty is a fee that is charged if the loan is paid off earlier than the specified term of the loan. Depending on your loan program and applicable state law, you may or may not incur a prepayment penalty. Contact your loan officer for specific information.

Prime Rate:

The interest rate charged by lenders to their best, most creditworthy customers. A less credit worthy customer may be offered a loan at the prime rate plus anywhere from 2 to 10 percent. Borrowing at below-prime also occurs, but is less common and usually applies to businesses, not individual consumers. The Federal Reserve determines whether to lower or raise the prime rate based on a variety of economic factors. Many consumer loans, such as auto, home equity, mortgage and credit card loans are based upon the prime rate. Building and maintaining a good credit history are two of the most important qualifications for prime-rate borrowing.

Principal:

The total amount of a loan, not including any capitalized fees or interest.

Payment Scheme:

Every month you are required to put money towards what you owe which is considered your monthly payment.

Payment Schedule:

The method for disclosing your payment schedule varies by loan type. For fixed-rate loans, the payment schedule indicates what your required monthly payment will be throughout the life of your loan. The payment schedule for VA, FHA, one-time MIP and uninsured conventional loans should also indicate a fixed monthly payment. The payment schedule for fixed-rate insured loans may gradually decrease over time due to a declining insurance premium. For adjustable rate loans, the payment schedules will vary by loan type and are based on conservative assumptions of future interest rates.

Personal cards:

A personal credit card is used for your own use to make purchases that are needed for various reasons. This is different from a business card, which makes purchases that support or benefit a business operation.

Plastic:

A slang term for a credit card.

Premium cards:

This is a group of cards for people or businesses with outstanding credit. They are offered special privilege cards that have higher limits, lower interest, or no limit at all.

Prepaid credit card:

Some credit card companies have cards with the option of paying first and using later. This is generally for people who have had some sort of credit difficulty. You would put money onto the card and then have that amount to spend.

Promotions:

This refers to the various deals that companies offer to lure you to their business. Some deals include low interest, balance transfer rewards, points or air miles, or even money towards vehicles. If you're in the market for a card, you can look around to see who has the best promotion.

Protection:

This refers to the insurance you can have on your card to protect you in times that you may not be able to make payments, such as the loss of a job. In addition, there is insurance to protect you if your card is lost or stolen.

Provider:

The company or lender from which you are obtaining a credit card.

Proof of debt form:

A creditor submits this form to the trustee to establish his/her claim in bankruptcy.

Payday loans:

It is a short-term loan that covers a borrower's expenses until he receives his next paycheck. It is also known as paycheck advance or payday advance.

Payment shock:

It occurs when the minimum payment on an adjustable rate mortgage loan suddenly becomes so high that the borrower gets a shock.

Personal finance:

It refers to the strategies of managing a person's finances. It comprises of saving, investing, budgeting, etc.

PMI:

It is the short form of Private Mortgage Insurance. This insurance protects lenders against loss if a borrower defaults on a mortgage loan.

Q

Q-form:

This form consists of a series of questions a borrower needs to answer during a loan requisition.

Quality Ratios:

This means the amount of income spent towards housing and household debts. The front ratio is the first qualifying ratio which means the percentage of monthly payment that is spent towards a house payment. The back ratio consists of all the monthly debts like credit cards, car payments, student loans divided by before-tax income in addition to the house payment.

R

Rate:

When a lender grants a particular amount as loan to a borrower he also charges some amount as an interest rate either annually as Annual Percentage Rate (apr) or on a monthly basis. This is known as rate.

Real Financing Cost:

Real financing cost comprises of consumer rates related to varied expenditure and fees along with the time period of the loan. The complete real financing costs also include your closing fees in context of your loan amount.

Refinancing:

The process of clearing off one loan with the help of a fresh loan by the same individual is known as refinancing.

Repossession:

When a borrower fails to repay a particular loan amount, the creditor in most cases seizes the collateral to make up the particular loss which the present loan is worthy of.

Reverse mortgage:

This type of mortgage is available to homeowners who are at least 62 years old. It allows the homeowners to convert their home equity into cash. They are not required to repay the loans as long as they live in their property.

Residential Mortgage:

It refers to the loan used to purchase a residential property with a particular payment period and interest rates. Borrower has to pledge a security to obtain this loan.

S

Secured Debt:

These types of debts are usually backed up by collateral in case the borrower fails to pay a loan within the given time. These loans are taken at times the borrower is undergoing a financial crunch. Auto loans, mortgages, are some important examples of secured debts.

Security:

This is same as collateral which is given as a supportive materialistic assurance, (equivalent to the present loan amount) to creditor in case a borrower fails to repay a loan amount. The creditor in that case can sell of this additional property to retrieve his money.

Security deposit:

This is an additional assurance for a lender, in case the borrower defaults while repaying the loan.

Servicing:

A complete evaluation and updated transaction kept by a lender during the post loan period. This includes collection and payment of taxes, insurance, property estimations and similar type of dealings.

Simple Interest:

The interest rate that is charged on the basic amount that is borrowed. This interest rate is not compounded and thus is considered to be the most lucrative.

Sign up fee:

When a customer gets registered with a particular company to avail the required services, the company might end up charging a certain amount of money from the customer. This is known as sign up fee. However, now most of the companies do not charge the customers anything as sign up fees.

Student cards:

These are credit cards especially designed for the use of a student. These cards have a considerably low purchase limit on them and a lower interest rate for the benefit of the students. The students with a respectable credit history find these cards convenient for their limited use.

Statute Of Limitations:

This is the period within which your creditors can file lawsuits against you for non-repayment of debts. The Statute Of Limitations (SOL) period varies from state to state.

Surplus income:

The amount left after subtracting all your basic expenses (food, mortgage, insurance, etc.) from your net income is known as surplus income.

Subordinate loan:

It refers to a loan whose priority is lower than the other loans with regard to claims on assets or income. It is also known as subordinated loan or junior security.

Short sale:

It refers to the sale of a property/security in which the recovered money is less than the outstanding loan balance. It often happens when a borrower defaults on a mortgage loan.

Schedule A:

US tax payers use this income tax form to show itemized deductions.

Satisfaction of debt:

It refers to a document issued by a lender proving that the debt has been repaid fully.

Satisfaction of mortgage:

It refers to a document issued by the mortgage lender to prove that the loan has been repaid.

Soft loan:

It refers to a loan with a below market interest rate.

T

Tax Impound:

Money paid to a lender in relation to annual tax expenditures.

Tax Lien:

When a borrower fails to pay taxes at regular intervals the lender may claim a property of the borrower to make up the tax amount.

Third Party Fees:

When a lender hires a third party and avails their services he pays a particular amount of money as fees to them.

Total Payments:

The entire amount a borrower pays during the life span of a loan which includes principal amount, interest rates, taxes and other financial charges.

Trade Lines:

The various credit accounts that reflect on your credit report are known as Trade lines.

Trans Union:

It is amongst the three largest and most popular credit bureaus in the United States.

Trustee:

A person (or institution) who has legal rights and responsibilities to a property and is entrusted to use it for another's benefit.

Truth-in-Lending Act:

This is a Federal law which consists of a written document with all the terms and conditions related to a particular mortgage transaction. This documentation includes mandatory disclosure of apr, hidden fees and other relevant charges.

Token payments:

These are small payments that the debtors are required to make to the creditors when they are unable to make normal payments.The payments can be as small as $1.00 per month.

U

Underwriting:

Procedure dealing with the evaluation of a particular property as mentioned in the appraisal report. It also deals with the borrower's creditworthiness and capacity and willingness to repay a particular loan.

Underwriting Fee:

The underwriting fee includes the total cost pertaining to the evaluation and estimation of a loan, an individual's credit report and its latest status in order to determine an his credit worthiness as an applicant for a loan.

Usury:

The additional interest charges on the legal rates that are enforced by the law.

Unsecured Debt:

A debt or loan which is not backed by collateral. Unsecured debts are usually a verbal commitment that has no security attached to it in case the borrower undergoes a default during repayment of a loan amount. Personal loans, credit card bills, medical bills are some typical examples of unsecured debts.

V

Verification of Deposit: (VOD):

A written document signed and approved by the original creditor or the financial institution from where the borrower had taken the loan. This document verifies and authenticates the status of a borrower's financial records and transactions.

Voluntary Lien:

A lender's legal claim for a property with the approval of the owner which includes payments for a pending debt amount and the services used.

W

Waiver:

A formal written statement of renouncing a claim or right or position etc.

Wraparound:

It is a process through which an anticipatory loan is merged with a new loan the interest rate of which falls in between the old rate and the current market rate. The amount of loan is generally paid to the second lender who then forwards the same to the first lender and keeps the additional amount as fee.

Wire Transfer Fee:

Occasionally funds can be transferred via the inter-bank wire transfer system to you, your original creditor, or to the collection agencies. There are minimum charges as fees for this type of transfer.

Windfalls:

This means that any assets or income generated during bankruptcy will go towards the repayment of the debt.