Understanding the Language of Debt and Loan Consolidation
Glossary: A-F
Abstract (of Title): is a summary of the public records relating to the title to a particular piece of land to determine whether there are any title defects which need to be cleared before buyer can purchase clear, marketable and insurable title.
Acceleration Clause: is a condition in a mortgage that may require the balance of the loan to become due immediately, if regular payments are not met or if there is a breach of other conditions of the loan.
Adjustable Rate Mortgage (ARM): Is a loan featuring an interest rate that fluctuates periodically during the term of the loan usually in accordance with changes in the index rate, which in turn is determined by current market conditions. Monthly payments may go up or down accordingly.
Agreement of Sale: is also known as a ‘contract of purchase’, ‘purchase agreement’ or ‘sales agreement’. It is a binding contract in which a seller agrees to sell and a buyer agrees to buy under the specific terms and conditions, written in the contract and signed by both parties.
Amortization: A debt repayment process whereby borrowers make periodic, monthly payments of interest and principal usually on a mortgage loan over the course of a fixed number of years. While a portion of every payment is applied to both the interest and the principal balance, the percentage of each varies and is determined in the amortization schedule.
Amortization Schedule: is a table detailing the periodic payments on a loan and stipulates the specific monetary amount in each payment that goes towards interest and the amount put towards the principal balance. Initially, a large portion of each payment is devoted to interest and, as the loan matures, a larger portion goes towards paying down the principal. The amortization schedule is generated by an amortization calculator.
Amortization Calculator: is used to determine the periodic payment amount due on a loan by factoring into every installment the varying amounts of interest and principal. The amortization schedule calculator then establishes a monthly payment that will cover the loan over a certain period of time.
Annual Percentage Rate (APR): Represents the total cost of credit including interest, points and loan fees and is expressed in the form of an annual percentage rate. Pursuant to the Federal Truth in Lending Act, creditors must conspicuously disclose the APR in all consumer credit agreements. The nominal APR is the simple-interest rate for a year while the effective APR is the fee+compound interest rate calculated across a one year period.
Appraisal: is an expert judgment or estimate of the quality and monetary value of real estate as of a given date.
Assumption of Mortgage: This relates to an obligation assumed by the purchaser of a property to become personally liable for payment of an existing mortgage. This can only be done with the assent of the lender. In an Assumption, the buyer is substituted for the original mortgage signers and the latter is released from further liability through the Assumption.
Bad Credit: Is determined by a low credit score or a poor credit rating. Factors contributing to bad credit include bankruptcy filings, county court judgments, late payments and payment in arrears, and the use of credit cards beyond the authorized limit.
Bad Credit Debt Consolidation Loan: A debt consolidation loan that enables consumers with a bad or poor credit history to pay off high-interest debt with a single loan resulting in one lower monthly payment and a lower interest rate. It can provide borrowers the opportunity to settle their debts quicker and to repair their credit rating.
Bad Credit Payday Loan: Is usually a small, unsecured loan, which is typically due in two weeks or on the borrower's next payday. It provides quick emergency funds to someone who is temporarily cash-strapped. In most cases, bad credit payday loans may be obtained without a credit check, that is, without regard to an applicant's credit history. Individuals whose credit report is flawed by bankruptcy, defaulting payments, or county court judgments may avail themselves of this source of funding.
Bad Credit Personal Loan: This type of personal loan tides borrowers over in emergency situations such as when there is a need for extra cash for unforeseen expenses, for debt consolidation, unforeseen and budget-balancing etc. A bad credit personal loan can help applicants who have no credit, poor credit or bankruptcy issues..
Balloon Loan: This is a loan (usually a mortgage loan) that allows borrowers to make interest only payments, or payments of some combination of interest and principal. Since the monthly installments are not usually enough to fully repay the loan by the end of term, the balance (the balloon payment) must be paid off in a lump sum. Some balloon loans require lump payments at specific time intervals. Balloon loans may also be given for auto or personal loans.
Balloon Payment: is one large lump sum payment that is made to cover the balance due, most commonly at the end of a long term balloon mortgage loan.
Bankruptcy: A proceeding in a federal court whereby a debtor, -person or entity- that upon voluntary petition or pursued by creditors, is judged to be insolvent. In general if a debtor is declared bankrupt his/her/its assets are then administered for the creditors and distributed among them.
Binder or “Offer to Purchase”: refers to a preliminary agreement, which is secured by payment of earnest money, as an offer to purchase real estate. A binder secures the right to purchase at the agreed upon terms and conditions for a limited period of time. If the buyers changes his/her mind or is unable to purchase, the earnest money is forfeited, unless there is a specific clause in the binder that stipulates otherwise.
Cash Advance: Also known as paycheck advances, payday advances, and payday loans. This short-term form of credit helps bridge the gap between pay days and helps the borrower cope with a financial emergency. Payday cash advance loans are generally for small amounts up to $1,000 and must usually be repaid in two weeks. The interest and charge for these loans varies greatly between lenders.
Chapter 7 Bankruptcy: This form of bankruptcy involves the liquidation of as much of the debtor's property (unsecured debt) as possible, while reserving him or her sufficient assets to start on a clean slate.
Chapter 11 Bankruptcy: The chapter of the Bankruptcy Code that provides for reorganization, usually of a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.
Chapter 13 Bankruptcy: This type of bankruptcy involves a repayment plan that sets forth with specificity the manner in which debtors will settle their debts over three to five years. The minimum amount of payment required depends on the debtor's income, balance, and the amount that unsecured lenders would have been paid if the former had filed for Chapter 7 bankruptcy.
Closing Costs: refers to the diverse expenses which sellers and buyers incur, in addition to the price of the property, to complete a transaction in transferring ownership of real estate. They include such items as Documentary Stamps on Notes & Deeds, Cost of Abstract, Recording Deed and Mortgage, Documentary Stamps on Deed, Escrow Fees, Real Estate Commission, Attorney's Fee, Title Insurance, Survey Charge Appraisal and Inspection and others. The agreement of sale negotiated between the buyer and the seller may state in writing who will pay each of the above costs.
Closing Day: Closing day is when the legal formalities of a real estate sale are concluded. Certificate of title, abstract and deed pass to the buyer. Buyer signs the mortgage and closing costs are paid.
Collateral: Collateral is simply assets that have been pledged by the recipient of a loan as security on the value of the loan. In the event that circumstances make it impossible for the recipient to repay the loan, the lender can seize ownership of the collateral in order to settle the debt.
Collection Agency: is a business that pursues payments on debts owed by individuals or businesses. Collection agencies operate as agents of creditors and collect debts in exchange for a fee or percentage of the amount owed. A first-party agency is usually a subsidiary of the original company owed. A third party agency is a separate agency contracted by a creditor or company to collect debts on their behalf. Some collection agencies purchase a debt at a fraction of its initial value and then collect upon it. In the U.S. and in many countries elsewhere there are rules and regulations regarding collection agencies and the way they are allowed to practice.
Commission: Money paid to real estate agent, any broker or agent as compensation for finding a buyer. Commission is usually paid by the seller upon completion of the transaction and is a percentage of the sale or deal involved. The usual commission from house sales is 6% and on land sales 10%.
Condominium: refers to individual ownership of a dwelling unit and an individual interest in the common areas and amenities which serve the multi-unit building as a whole.
Credit Card Debt Consolidation Loan: A loan that combines multiple credit card debts into a single loan with lower monthly payments.
Credit Card Debt Management Company: - Helps consumers lower their credit card debt by negotiating with creditors to reduce or waive the interest rate and credit card fees. Their role is to help consumers effectively manage their assets. A credit card debt management company also creates debt management plans (DMPs) whereby clients deposit monthly installment payments into an account, which the company then uses to pay off the latter's creditors. Some credit debt management companies can negotiate settlements for consumer debts for almost fifty percent of the balance.
Credit Check: A credit check is an assessment of a borrower’s income and financial status by a potential lender. This process involves a review of a borrower's credit history to determine creditworthiness and ability as well as willingness to repay debts. Credit checks refer to previous payment history and to other information that can inform the creditor as to the level of risk posed by the applicant.
Credit Counseling Agency: This organization advises and assists borrowers in managing their finances. The agency creates workable budgets, negotiates with the latter's creditors to lower interest and waive finance charges, and by creates affordable debt repayment plans for its clients.
Credit Rating: A credit rating or a credit score estimates in a numeric way the credit worthiness of an individual or business entity. It is an evaluation of a potential borrower’s ability to repay debt. The numeric evaluation ranges from 300 to 900 and is determined from an examination by credit bureaus of the borrower’s overall financial history, previous debt repayment record, current assets and liabilities.
Credit Repair: Is basically when a consumer disputes the accuracy of information in his/her credit reports. If a consumer disputes information in a credit report, the credit bureau has 30 days to verify the data and notify the consumer of its decision. It also refers to when consumers develop a spending plan to lower debt and raise their credit score. One way of doing this is to maintaining current balances below 40% of their credit card limit.
Credit report: Credit reports are issued by credit reporting bureaus Experian, Equifax and Trans Union. Each report is periodic examination of a borrower's overall credit history and of public records that assess creditworthiness. The credit bureaus assign a credit score or credit rating based on that information.
Credit Score: see - Credit Rating
Credit Settlement Company: A company of experienced professionals, who negotiate with lenders on behalf of their clients to reduce debt balances, halt collection calls and stave off foreclosures and bankruptcy. When settlement is reached the lender informs the credit reporting agencies that the balance has been 'settled', 'paid' or 'settled at a reduced amount'.
Debt Consolidation Calculator: Calculates the monthly payments and that the borrower will pay after successful negotiations with lenders through settlement. It is based on the benefits of consolidating current loan amounts, outstanding debts, and interest rates.
Debt Management Plan (DMP): requires borrowers to deposit monthly funds with a credit counseling agency, which disburses them to creditors for purposes of paying off the former's outstanding debt. DMPs benefit consumers by keeping collection calls at bay and can waive finance charges.
Debt Settlement: is an agreement between creditor(s) and debtor(s) for a lump sum settlement that is less than the balance owed. To pay their debts, borrowers make a single monthly installment to a debt settlement firm. The company places the funds in a trust account and then makes disbursements to the different creditors involved.
Deed: A formal written document by which title to real estate transfers from one owner to another. A deed should contain an accurate description of the property being conveyed. It should be signed and witnessed according to the laws of the State where the property is located. The deed should be delivered to the buyer on closing day and signed by the two parties: the grantor and the grantee.
Default: When a borrower fails to pay the interest or principal on a loan by the due date he/she/it is in default.
Depreciation: refers to the decline in value of a property due to wear and tear, adverse changes in the neighborhood or any degradation causing loss of value.
Earned Income Tax Credit (EITC): is a refundable federal income tax credit for low to moderate working families and individuals originally approved by Congress in part to offset the burden of social security taxes and provide an incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim & qualify for the credit.
Enrolled Agent (EA): Is a federally-licensed tax specialist who prepares tax returns for individuals, corporations, partnerships, trusts, estates and other tax-reporting organizations. An Enrolled Agent is also authorized to represent taxpayers for appeals and audits before the Internal Revenue Service (IRS).
Equity: represents the owner's interest in the real property or the property's market value less the amount of any debt (loans)and encumbrances (liens) secured by the real estate. Another view is that equity is the value of your property less debt and marketing costs.
Fair Credit Billing Act (FCBA): This is a federal legislation designed to protect consumers from unfair billing practices and to provide a method for resolving billing errors in “open end” credit accounts such as credit cards and charge card accounts. The act requires all credit card issuers, including stores, to follow a specific procedure when addressing billing disputes on the part of credit card borrowers. Pursuant to the FCBA, credit card companies must investigate and resolve disputes concerning billing within a certain framework and time period.
Fair Credit Reporting Act (FRCA): The FRCA is federal law aimed at ensuring that the data contained in consumer reports is complete and accurate, and that consumer reporting agencies exercise their responsibilities with impartiality and respect for the consumer’s right to privacy. It ensures that borrowers are entitled to review their credit report and to have recourse to have erroneous statements corrected.
Fannie Mae: is the more commonly known name of the Federal National Mortgage Association operates principally as a funding source for mortgage lenders. It is government-authorized private enterprise that buys home mortgages at discounted costs from the original mortgage creditors. Fannie Mae then resells them in the secondary mortgage market. Fannie Mae’s stocks trade on the New York Stock Exchange,
Finance charge: This represents the total cost of taking out a loan or other form of credit and consists of the ensemble of fees that are tacked on to the original loan amount. Finance charges include balance transfer fees, late fees, service fees for transactions, and interest charges.
Financial planner: This professional helps clients develop a plan to obtain financial objectives and provide an assessment in almost every financial area ranging from estate planning, retirement, and taxes to insurance, investments, and savings. A financial planner also assists borrowers in managing expenditures, lowering their taxes, and setting up personal budgets.
First-time buyer loan: This is a financing vehicle typically for consumers who have never owned a home. A first-time buyer loan offers financial aid in a number of ways. These can include waiver of or very low down payment, restriction on the fees that creditors may charge, loan forgiveness, the offer of grants, or subsidization of interest charges.
Fixed rate mortgage: is a type of home loan where the rate of interest remains the same for the entire term of the loan, usually 15, 20 or 30 years. Fixed rate mortgages are the most common mortgage for first-time homebuyers because the stability allows for predictability in monthly costs. This type of mortgage protects the borrower against future inflation when interest rates go up but at the same will remain the same if interest rates go down.
Foreclosure: This is the legal proceeding by which the property of an owner who has defaulted on his or her loan payment is repossessed and sold to satisfy the debt.
Freddie Mac (FHLMC): Commonly known as the Federal Home Loan Mortgage Corporation is a Congressionally-authorized institution which purchases eligible residential mortgages from creditors and sells them in the secondary mortgage market.
