Banker—loosely, loan officers at any bank, representing only the bank’s products and interests.
Broker—one who finds or negotiates the deal between the borrower and the lender, usually representing many lenders, therefore able to offer a range of rates, terms and other stipulations. Syn.: choice.
Closing—The finalization of the paperwork in a real estate transaction. Buyers sign acceptance of the property as described in writing and loan documentation, and the release of the down payment to the seller. Buyers and sellers do not usually attend the closing together. It may occur at a bank, a title company or in front of a notary public.
First Mortgage—the original loan taken out to purchase a home.
Float—the time between when you write a check and when the money is deducted from your checking account. For credit cards (and HELOC cards) it is the time between when you submit your credit card and the money is added to charges against your line of credit. Also known as (aka) free money. Float used to be the time between when a person could pay a bill then go borrow from a sibling to cover the impending debt; hence, float: you fell in but you hadn’t drowned yet—you floated! Float has recently been reduced by the Electronic Funds Transfer Act (EFTA), allowing vendors to convert paper checks to electronic debits the day they receive the checks.
HELOC—Home Equity Line of Credit: A credit line, or draw account, that allows you to spend money up to the amount of equity (or a percentage thereof) you have in your home. Obtained through a mortgage broker, banker or other lender. Usually has a variable interest rate, yet because it’s charged daily on the fluctuating balance, even if it’s higher than your fixed-rate mortgage, it could be a bargain for certain uses.
Home Equity Line of Credit—same as HELOC (HEE-lok). See above.
Home Equity Loan—like a home equity line of credit, this instrument is based on the equity in your property. However, very unlike a line of credit, a loan is a lump sum withdrawn all at once. It is paid back incrementally until the entire loan amount is eliminated. Therefore, both principal and interest are paid during the entire period of any outstanding balance. That’s why we call it HEL, for short.
Lender—a person or company in the business of making money by selling money; for example, I’ll give you $1 today if you’ll give me $1 a year for three years.
Loan-to-value ratio (LTV)—how much value backs this loan? (Divide the loan by the purchase price).
Mortgagee—who gets the property if you don’t pay, that is, the lender; the weak position in the game, as the suffix “ee” always indicates.
Mortgagor—the borrower; the power position; the position of choice.
Negative Amortization—monthly payments are too small to cover either principal or interest reduction.
PITI—Principle, Interest, Taxes and Insurance (used to always mean private mortgage insurance, but more recently lenders are using the second “I” to stand for hazard insurance).
Points—a sneaky way for the lender to get more money for the loan without raising the interest rate. One point equals one percent of the mortgage.
Principal—the amount of the loan.
Refinancing—taking out a new loan to pay off the old one. Is it a better deal? Ask for the “break even” point, the time by which all costs for the new loan are paid. Then decide whether it’s worth it!
Rule of 72—the “rule of 72” is a math trick for quickly approximating correct answers to otherwise complex questions. It’s a principle about doubling. Basically, it states that the amount of time required to double an amount can be estimated by dividing 72 by a rate of return or interest. For example, if you receive 8% interest, divide 72 by 8 and it will take 9 years to double your savings. If you receive a 4% cost of living raise, it will take 18 years to catch up to inflation.
Sub-prime—not as good. A sub-prime borrower has spotty credit or doesn't fully disclose financial standing (no doc loan). A sub-prime loan is a rate higher than the best customers would get, because it's offered to riskier borrowers or in riskier situations.