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Copy of CONSUMER LOANS VOCABULARY AND STUDY GUIDE

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CONSUMER LOANS VOCABULARY AND STUDY GUIDE
Fixed Rate Mortgage: a home loan that has a fixed interest rate for the
entire term of the loan
Adjustable-rate mortgage (ARM): a home loan with a variable interest rate
with an ARM, the initial interest rate is fixed for a period of time.
Why are the initial interest rates offered for ARMs usually less than the
rates offered for fixed-rate loans? You can change the yearly time you use
the interest rate for fixed they stay the same
Amortization table: a table that shows each periodic loan payment that is
owed, typically monthly, and how much of the payment is designated for
the interest versus the principal.
How is the loan payment determined? Divide the interest rate you're being
charged by the number of payments you'll make each year, usually 12
months
How do the components - interest & principal - of the loan payment
change each month?
Through mortgage amortization
Borrower or debtor: someone who loans from a bank or financial
institution and has to pay the money back
How does a credit score (FICO score) help or hurt borrowers/debtors?
The higher the score, the better a borrower looks to potential lenders it
helps determine the range they can get or if they’ll even be considered
Capital: is typically cash or liquid assets being held or obtained for
expenditures
Collateral: something pledged as security for repayment of a loan, to be
forfeited in the event of a default.
Describe the difference between capital and collateral. Capital is the
measure of the farmer's equity investment in the enterprise. Collateral is
the question of how the loan is to be secured against business failure or
loan default
Closing costs: processing fees you pay to your lender when you close on
your loan
What do closing costs pay for?mortgage insurance, homeowner's
insurance, appraisal fees and property taxes
Contingency: A loan contingency sets specific conditions that must be met
for the sale of a home to go through and can protect you from penalties if
you're unable to get financing
Counteroffer:
An offer that was made to undermine the other offer
Acceptance:
Describe the negotiation process between the buyer and seller of a home
when the initial offer is lower than the price the owner is asking for.
A low initial offer may result in buying the property you desire for less than
the listed price – or it may result in another buyer's higher offer being
accepted.
Creditor: a person or company who is owed money
Down Payment: is money paid upfront in a financial transaction, such as
the purchase of a home or car
What are 2 sources of down payment money?
Checking, savings or 401k
Earnest money: or good faith deposit, is a sum of money you put down to
demonstrate your seriousness about buying a home
Why does earnest money usually accompany an offer?
It protects you if something is wrong with the property it helps if you want
out of the deal and proves your serious
Equity: the value that would be returned to a company's shareholders if all
of the assets were liquidated and all of the company's debts were paid off
What are some financial advantages of owning your home?
● A good long-term investment
● Low-interest rates
● Building equity
What two factors increase a homeowner’s equity?
● Appreciation, caused by inflation or improvements to the house or
property;
● The continuing process of paying off the principal you owe on your
first mortgage.
When do you pay taxes on home equity?
When you take it out
Finance charge:
the cost of borrowing money, including interest and other fees
What is APR (Annual Percentage Rate)?
the annual cost of a loan to a borrower
Lien: a claim or legal right against assets that are typically used as
collateral to satisfy a debt
How would a lien on a house hinder the home buying process?
putting a lien on a property is a cheap way of collecting what they are
owed, sooner or later. Liens are part of the public record. Liens stay with
the property when it is sold, but remains on the previous owner's credit
report
Market value (real estate):
the price an asset would fetch in the marketplace, or the value that the
investment community gives to particular equity or business.
How is the market value used for tax purposes?
The higher your home's assessed value, the more you'll pay in tax
Mortgage:
an agreement between the borrower and a mortgage lender to buy or
refinance a home without having all the cash upfront
What types of documents do you need to provide for a mortgage?
● Tax returns. Mortgage lenders want to get the full story of your
financial situation
● Pay stubs, W-2s, or other proof of income
● Bank statements and other assets
● Credit history
Why do you need to provide more information for a mortgage than for
other types of loans?
The more information you can provide the loan officer about your
financial situation, such as debts and nonwage income sources, the more
accurate the information on your Loan Estimate is likely to be
Principal: the money that you originally agreed to payback
Private Mortgage Insurance (PMI): a type of mortgage insurance you might
be required to pay for if you have a conventional loan
In order to avoid paying PMI how much does the down payment on a home
need to be?
t least one-fifth of the purchase price of the home
Who does PMI protect? Rhe lender if you stop paying your loans
What is the advantage to the buyer?
PMI can open up more payment and housing options and offer different
loan terms
Car Title:
a legal document establishing proof of ownership of a vehicle
What is title insurance?
a simple insurance policy that provides protection in the event someone
comes along and contests your ownership of a property, as well as for
those refinancing in the event that money is stolen when being wired and
etc.
Front End Ratio: aka the housing ratio this calculation shows what
percentage of your gross monthly income will go towards housing
expenses
Back End Ratio:
compares what portion of your income is needed to cover all of your
monthly debts.
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