Loan Glossary

Account Statement: A statement of a loan account provided by the lender or servicing agent for the loan. This document details the current loan balance, interest charges, and other information, such as an account number or payment address.

Accrued Interest: Interest (not penalties) accumulated and due on loans.

Borrower: Person responsible for repaying a loan who has signed and agreed to the terms in the promissory note.

Balloon Payment: The final payment on a loan, when that payment is greater than the preceding installment payments and pays the loan in full.

Capitalization: Adding unpaid interest to the loan principal. Capitalization increases the principal amount of the loan and its total cost.

Cap: A limit placed on adjustments in adjustable rate mortgages to protect the borrower from large increases in the interest rate or the payment level.

Cancellation: Forgiveness of his or her obligation to repay a portion or the total principal and interest of the obligation upon the death of an individual or upon approval of HHS of permanent and total disability.

Collateral: Something pledged as security for a debt.

Commercial Bank: A financial institution authorized to provide a variety of financial services.

Cooperative: A building or development of two or more units in which the right to occupy a unit is obtained by the purchase of stock in the corporation which owns the building.

Cushion: An amount of money, occasionally required by a lender, which is set aside to protect said lender against increases in expenses.

Debt: An obligation to pay.

Default: Failure to repay a loan according to the terms of the promissory note. This failure must persist for 270 days.

Deferment: A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue for subsidized loans.

Deferred Payments: Payments to be made at some future date.
 
Delinquent Loans: A loan is considered delinquent when payments are late or missed.

Demand Loan: A loan having no specific date for repayment but may be called by the lender at any time.

Discharge: The release of a borrower from the obligation to repay his or her loan.

Disclosure Statement: Provides the borrower with information about the actual cost of the loan, including the interest rate, origination, insurance, and loan fees, and any other kinds of finance charges.

Down Payment: Cash portion paid by a buyer from his/her own funds, as opposed to that portion of the purchase price which is financed.

Equity: The market value of real property, less the amount of existing liens.

Escrow Account: Account held by a lender for payment of taxes, insurance, or other periodic debts against real property.

Forbearance: Postponement of payment on a loan, typically if the borrower doesn't qualify for a deferment and is unable to make payments for a reason such as poor health. Interest continues to accrue during forbearance.

Foreclosure: A legal proceeding to extinguish all rights, title, and interest of the owner(s) of a property in order to sell the property to satisfy a lien against it.

General Partnership: A partnership made up of general partners, without special (limited) partners; that is, no partner's liability is limited.

Ground Rent: The rent paid on leased land.

Interest: An expense of borrowing money that is calculated as a percentage of the amount borrowed.

Index: The index is the measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time.

Interim Loan: Temporary financing, usually for construction.

Loan: Money borrowed that must be repaid.

Loan fee: An expense of borrowing deducted proportionately from each loan disbursement.

Late Charge: A fee assessed a borrower for failing to make all or part of an installment when the loan is more than 60 days past due.

Lender: A general term encompassing all mortgagees and beneficiaries under deeds of trust.

Limited Partnership: One in which there is at least one partner whose liability is limited to the amount invested, and at least one partner whose liability extends beyond monetary investment.

Line of Credit: An agreement whereby a financial institution promises to lend a certain amount of money without the need to file another application.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Maturity: The due date of a loan.

Negative Amortization: An increase in the outstanding balance of a loan resulting from the failure of periodic payments to cover required interest charged on the loan.

Outstanding Balance: The amount currently owed on a loan.

Participation: Lender involvement in a development for a percentage of the gross sales or profit, as well as interest on the loan. Usually occurs when money is difficult to obtain.
 
Principal Balance: The amount owed on a loan or loans at any given time. The principal balance may include capitalized interest.

Principal and Interest Payment: The periodic (typically monthly) payment required by an amortizing loan that includes escrow deposits.

Promissory Note: A legally binding contract between a lender and a borrower. The promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid.

Real Estate: A term that is generally synonymous with real property.

Refinancing: The substitution of an old loan(s) with a new loan(s) either with the same lender or with a different lender. Also, renewing an existing or a maturing loan with the same lender.

Repayment Period: The period during which a borrower is obligated to make payments on his or her loan(s).

Repayment Schedule:  listing of the principal and interest due on each installment payment of a loan, number of payments required to repay a loan, interest rate, due date of the first payment, and frequency of payments.

Renegotiation: Process by which the school and borrower agree to a new repayment schedule.

Skip-Trace: The process of locating the current address of a borrower. The loan collector may contact family members and personal references or faculty and staff references listed on loan applications, exit interviews, or other documents.

Take Out Loan: The permanent (long term) financing of real estate after completion of construction.

Truth-in-Lending Statement: A document that must be provided to a borrower that states the interest rate and other information relative to a consumer credit action.

Term: The time during which principal and/or interest payments must be made.

Variable Interest: Rate of interest on a loan that is tied to a stated index and changes annually every year as the index changes.