Read these 20 Definitions of Loan Jargon Tips tips to make your life smarter, better, faster and wiser. Each tip is approved by our Editors and created by expert writers so great we call them Gurus. LifeTips is the place to go when you need to know about Personal Loans tips and hundreds of other topics.
A UCC is an instrument that is prepared and signed
by the debtor giving the lender security interest
in real property.
The UCC normally details the year manufactured, model
and serial numbers of the collateral as well as a
short description of the property.
UCC's are normally filed with local and/or state
agencies.
PMI is an acronymn for Private Mortgage Insurance.
PMI is usually required if you borrow more than
80% of the value of your home.
You should ask your lender how much the premiums
will cost per month, and for how long you will
have to pay the mortgage premium insurance. If
your loan balance falls below 80%, your lender is
required to cancel the insurance if you have
established a good payment record.
A mortgage is a document signed by a borrower when a home loan is made that gives the lender a right to take possession of the property if the borrower fails to pay off the loan.
You will be asked to provide the bank with a copy of
a deed to prove that you are the owner of the property.
The bank will also order title insurance to assure that
there are no other liens or encroachements on the
property.
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; and when interest rates fall, your monthly payments may be lowered.
These type of loans usually offer a lower initial
rate than a fixed rate loan. What you must be
concerned with if you choose this type of loan
is the cap on the loan, in other words, what is
the maximum interest rate this loan could go to
and what would your payments be if that scenario
happens.
An open end loan refers to a loan that you can
borrow additional funds against.
Based upon the terms of your loan, you can
make draws against the balance of the loan
using collateral that you gave the bank when
the loan documents were closed.
Lock-in refers to a written agreement guaranteeing a home buyer a specific interest rate on a home loan provided that the loan is closed within a certain period of time, such as 60 or 90 days. Often the agreement also specifies the number of points to be paid at closing.
This is a binding agreement for 60-90 days, if your
loan does not close within that time, you are not
guaranteed the rate or points quoted in the lock-in
agreement.
Overages are the difference between the lowest available price and any higher price that the home buyer agrees to pay for the loan. Loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.
Don't be afraid to negotiate; your broker is making
a considerable amount of money on your loan, so
negotiate your points and rate.
A good faith estimate is a document your lender is
required to provide you within 48 hours of your
mortgage loan application. Most lenders will provide
you with this form when you make application for
the mortgage.
This document outlines the estimated preliminary
costs involved with closing the loan as well as
the interest rate and APR you will be paying.
Closed end credit refers to a loan that does
not have a draw feature that allows the lender
to advance additional funds on your loan.
Transaction, settlement, or closing costs may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys' fees; recording fees; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs at the time of application or within three days of application. The good faith estimate lists each expected cost either as an amount or a range.
By law, you have the right to inspect your final closing statement 24 hours prior to loan closing.
This is a term that applies to a loan transaction
that involves refinancing your home or taking
a mortgage against equity in your property.
By law, the lender is forbidden to disburse funds
on the new loan for 3 business days after the loan
papers have been signed.
If during this time you wish to cancel the loan
transaction you may do so, by signing a cancellation
on the Right of Recission form.
Conventional loans are mortgage loans other than those insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly know as Farmers Home Administration, or FmHA).
Conventional loans usually have lower closing costs
and fees than loans backed by a government agency.
However, most lenders require that you have at
least 20-25% equity in your home to qualify for
this type of loan.
Banks often pressure borrowers to obtain this insurance
for one reason. It's highly profitable for them, since
they are paid as much as 50% of the policy amount as
income from the insurance company for writing the policy. Loan officers are frequently paid a percentage
of the profit of the policy as incentives.
You can buy more coverage for less money from an
insurance company if you really want the insurance.
Your bank cannot force you to take insurance coverage
as a requirement for making you a loan.
The interest rate is the cost of borrowing money expressed as a percentage rate. Interest rates can change because of market conditions.
It is also common for lenders to charge different
interest rates for different types of loans, as
well as higher rates if you have had past credit
problems.
Some states have usury limits that limit the interest
rate a bank may charge on a loan, however some national
banks are bypassing this regulation by stating the
loan documents were prepared in their home office therefore making it exempt from usury laws.
Generally, residential mortgages have the cheapest
loan rates. Consumer loans are usually determined
by the bank's competition in the market.
Loan to value % is a phrase that you may hear your
loan officer repeat quite often.
To obtain the loan/value of your property, divide
the loan amount by the appraised value of the property.
Loan origination fees are fees charged by the lender for processing the loan and are often expressed as a percentage of the loan amount.
These fees are used in the calculation of your APR%.
They are always negotiable, so don't be afraid to
ask for a lower fee.
Annual percentage rate (APR) is the cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees, and certain other credit charges that the borrower is required to pay.
APR is important to you because it reflects your true
loan rate. For example, if your APR rate is considerably higher than your quoted loan rate, you
should examine your Good Faith Estimates closely
for fees. Loan origination fees, points, as well
as MIP insurance premiums go into the calculation
of APR and they reflect the actual loan rate you
are paying by financing those fees. These fees
are always negotiable, so don't be afraid to
barter!
A pre-payment penalty is a penalty that your lender
assesses if you make pre-payments to your principal
balance or if you pay off your loan before the
maturity date.
Before signing any loan documents, make sure that
the contract does not state that if you pay off
the loan balance early you will be required to
pay a pre-payment penalty, since these penalties
can be as much as 1% of the principal balance.
being paid off.
An appraisal is an estimate of what your property
is valued at. It may be prepared by either a state
licensed appraiser or by bank personnel.
Unless otherwise agreed, you will be responsbile for
the cost of the appraisal. Your loan officer will
use this to calculate loan to value ratios.
Guru Spotlight |
George Sayour |