Glossary of Loan Terminology


ABA routing number

A series of numbers located at the bottom of an account holder’s checks or deposit slips. These numbers identify a particular account at a financial institution.


Every form of property owned by a debtor.


An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.


Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Automated Clearing House (ACH)

ACH securely and efficiently transfers funds electronically through participating financial institutions.


balance sheet

A financial statement that shows assets, liabilities, and net worth as of a specific date.

basis point

A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.

before-tax income

Income before taxes are deducted.


The person designated to receive the income from a trust, estate, or a deed of trust.


A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.


A violation of any legal obligation.


A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.



An item of value that guarantees payment of debt or may be collected in place of payment.

collection agency

A third party agency creditors use to collect debt. Sometimes a collection agency is a company set up by the creditor to collect debt. Also called a Credit Agency.

consumer report

Also called a “credit report,” a factual record of an individual’s credit payment history. Its main purpose is to help a lender quickly and objectively decide whether to give the consumer credit. A credit report is used to develop a credit score, but does not contain the score itself.


A person who officially undertakes responsibility for a loan in the event of the borrower’s default.

credit agency

A third party agency creditors use to collect debt. Sometimes a credit agency is a company set up by the creditor to collect debt. Also called a Collection Agency.

credit bureaus

Private, for-profit companies that gather information about a consumer’s credit history and sell it to banks, credit card companies, landlords, employers, and other interested parties.

credit counseling service

Companies that provide debt management plans and budget counseling, usually in return for fees.


A person or business who extends credit and to whom money is owed.

capital improvement

Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

certificate of deposit

Commonly known as a “CD,” certificates of deposit bear a maturity date and a specified rate of interest. Penalties may apply for early withdrawal.

credit score

Credit scores provide a numerical representation of a consumer’s credit at a given point in time. Credit scores are calculated using data contained in a consumer’s credit report. The score assesses the likelihood that a borrower will repay a loan or credit card

certificate of title

A statement provided by an abstract company, title company, or attorney stating that the current owner legally holds the title to real estate.

chain of title

The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

clear title

A title that is free of liens or legal questions as to ownership of the property.

closing cost item

A fee or amount that a homebuyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney’s fees. Many closing cost items are included as numbered items on the HUD-1 statement. Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney’s fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.


A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.


An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

credit history

A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

credit report

A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.

credit repository

An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.


debt load

The total amount of money the consumer owes.

debt management plan

A plan that helps consumers repay their debts and helps creditors collect the money owed them. Usually put together by a Credit Counseling Agency.

debt collector

Someone who regularly collects debts owed to others. This includes attorneys who collect debts on a regular basis.


Occurs when a borrower fails to repay a debt obligation in accordance with its terms.


An amount owed to another.


A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.


A decline in the value of property; the opposite of appreciation.


electronic funds transfer (EFT)

EFT allows account holders to transfer funds from an account electronically. This method of transfer is not only highly secure, but also extremely efficient and easy to transact.


A person who signs ownership interest over to another party. Contrast with co-maker.

Equal Credit Opportunity Act (ECOA)

A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.


Fair Credit Reporting Act

A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

FDIC insured

The Federal Deposit Insurance Corporation (FDIC) insures the total balances up to the maximum allowed by law.


home equity line of credit

A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.

home equity loan

A loan secured by a second deed of trust on a house, typically used as a home improvement loan.



The percentage a creditor charges on money borrowed.



An arrangement whereby a creditor gives a company or an individual money and arranges for them to pay it back on a timeline, usually with interest.


LIBOR stands for London Inter-Bank Offered Rate. This is a favorable interest rate offered for U.S. dollar deposits between a group of London banks. There are several different LIBOR rates, defined by the maturity of their deposit. The LIBOR is an international index that follows world economic conditions. LIBOR-indexed ARMs offer borrowers aggressive initial rates and have proven to be competitive with popular ARM indexes like the Treasury bill.



The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.


origination fee

A fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned.



When taking out a loan, it refers to the amount of debt, not including interest.


qualifying ratios

The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.



The annual rate of interest on a loan, expressed as a percentage of 100.

rate cap

A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

rate lock-in

A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.


secured debt

Debts linked to collateral. The collateral guarantees payment of the debt, or the creditor has a right to take the collateral.



This term refers to the period of time that covers the life of a loan.

total debt ratio

Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

Truth in Lending Act

A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.


unsecured debt

Debts with no collateral. Commonly used with credit cards, doctors’ bills, student loans, personal loans or rent.


variable rate

An interest rate that may change once an account opens.

We use cookies to better understand how our websites and services are used and provide tailored advertising. How does this work? We collect information about your online activities, such as the searches you conduct on our website and pages you visit. This information may be used to deliver advertising, on and off our website, that meet your specific interests. By continuing to use this website, you are giving your consent to collect your information.

I accept