Additional principal payment
An additional principal payment is a great way to payoff your loan early. Making 1 extra pyament a year can cut the length of a loan by as much as 7 years on a 30-year term.

Amortization
The process of paying a debt in segments over a set period of time, with a portion of each payment going toward principal, and a portion toward interest.

Appraisal
Someone certified by the state that determines the estimated market value of a property.

APR
Acronym for Annual Percentage Rate.

Adjustable Rate Mortgage (ARM)
A mortgage loan that adjusted over a given time.

Application
The process of documenting a borrowers information such as social security, employment, and income to approve the borrower of a loan.

Appreciation
When an asset such as your home increases in value over time.

Asking Price
The price of a home that is listed by the seller. The price is often subject to negotiation.

Balloon Loan
A loan that leaves a portion of the principal left unpaid. The consumer will usually refinance the balance at the end of the term.

Balloon Payment
The payment left at the end of a balloon loan.

Borrower
A person who gets a loan.

Cost-of-funds index
A common interest rate used for setting variable rate loans. This particular index tracks the interest rates at savings & loan institutions in the San Francisco Federal Home Loan Bank District.

Credit Report
A record of an individual's record of handling credit. Consumers have the right to view their credit reports once a year from each of the three major credit reporting agencies.

Credit Score
The three major credit agencies record a 3-digit score usually between 300 and 800. The higher the number, the better the credit.

Debt-to-income ration
A ratio used by lenders to determine a potential borrower's gross income is spent on expenses. The lower the ratio, the better.

Depreciation
The opposite of appreciation, depreciation is the loss of value over time.

Down Payment
Money put down on the purchase of an asset or home by the borrower. The larger the down payment, the smaller the loan.

Equal Credit Opportunity Act
The federal law that prohibits discrimination in credit. While it mandates an equal chance to obtain credit, it doesn't guarantee anyone will actually get credit.

Equifax
One of the three largest credit bureaus. Experian and TransUnion are the others.

Experian
One of the three largest credit bureaus. Equifax and TransUnion are the others.

Foreclosure
The legal process by which borrowers who cannot pay their mortgages may have their homes seized and sold to pay off the debt.

Gross Income
A Borrowers earnings before taxes.

Index Rate
On variable loans, it's the index plus some set margin. If your home equity rate, for example is prime plus 1 and the prime rate is 7 percent, your indexed rate is 8 percent.

Interest Rate
The rate charged for the use of money, most often expressed as an annualized figure. In consumer loans, it's the rate charged to consumers who want to borrow.

Joint Credit
When two or more borrowers combine assets and incomes to qualify for a loan.

Joint Liability
Two or more borrowers are responsible for the payment of a loan.

Late Charge
Fees to borowers who don't make a payment in a timely fashion.

Lien
A legal claim against property because a debt has not been paid. Liens must be paid or settled before property can be sold because they cloud the title

Loan Application
A document on which a prospective borrower lists details about his or her income/debt/employment/etc. Used by lenders to check credit and decide whether to grant a loan.

Loan Origination Fee
The underwriting charge from a lender. The charge is often expressed in points, and a point is 1 percent of the loan amount.

Loan Term
The period of time it will take to pay off the loan if payments are made according to the payment schedule.

Loan-to-value ratio (LTV)
The loan divided by property value. If the house is valued at $200,000 and the loan is $180,000, the LTV is 90 percent.

Margin
The amount that lenders charge above an index, usually expressed as percentage points.

Negative Amortization
When your montly payment doesn't cover all of the principle and interest that has accrued during the month, creating a shortfall. The shortfall is added to the remaining balance creating negative amortization. The result is that you owe more on the house than you did a month ago.

Net Income
Income after taxes. Sometimes also called take-home income.

Note
A legal document that acknowledges a debt and usually outlines the terms of the payments.

Notice of Default
A notification that a borrower has failed to pay. In mortgages, it can describe a formal step in the foreclosure process in which the lender notifies the courts of a borrower's failure to pay.

Pre-approval
A letter of commitment from a lender stating how much a borrower can borrow. More valuable than a pre-qualification, it requires a credit report and income verification.

Pre-qualification
A letter of opinion from a lender stating how much a borrower can borrow. Usually not backed up by any credit report.

Prime Rate
An index used by banks to set consumer interest rates.

Principal
Amount of money borrowed.

Qualifying Ratios
As calculated by lenders, the percentage of income that is spent on housing debt and combined household debt.

Remaing Balance
Unpaid principal on a loan.

Secured Debt
Debt secured by a claim on the property. A mortgage loan is secured debt, because the property can be seized if payments aren't made.

Simple Interest
Interest computed on the principal balance, not compounding.

Title
Ownership of property. Evidence of title is recorded in a deed and held in a county recorder's office.

Variable Interest Rate
Percentage a borrower pays for the use of money, usually expressed as an annual percentage, that changes in line with an index.