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HELOC EXPERT GLOSSARY

Glossary

Clear, plain-English definitions covering HELOCs, home equity loans, refinancing, DSCR, VA lending, and mortgage terminology.

A

A Terms

13 terms

Acceleration Clause

A mortgage provision that may allow the lender to require the full unpaid balance after specified defaults or other triggering events.

ACH Payment

An electronic payment sent through the Automated Clearing House network, often used for recurring mortgage payments.

Adjustable Rate

An interest rate that can change according to the terms of the loan and its underlying index or formula.

Amortization

The scheduled repayment of loan principal and interest over time.

Amortization Schedule

A table showing how each scheduled payment is allocated between principal and interest over time.

Annual Fee

A recurring yearly charge that may apply to maintaining a HELOC or other credit account.

Annual Percentage Rate (APR)

A standardized measure of borrowing cost that includes interest and certain finance charges, subject to applicable disclosure rules.

Appraisal

A professional opinion of property value used by lenders and others in real-estate transactions.

Appraisal Waiver

A lender or investor decision allowing an eligible transaction to proceed without a traditional full appraisal.

Assignment of Rents

A security agreement giving a lender specified rights in rental income after defined events, subject to the loan documents and law.

Available Credit

The portion of a credit line that remains available to draw, subject to the account terms and any lender restrictions.

B

B Terms

7 terms

Balloon Payment

A large payment due at the end of certain loan structures when the remaining balance has not been fully amortized.

Basis Point

One one-hundredth of one percentage point; 100 basis points equal 1 percentage point.

Borrower

A person or entity obligated to repay a loan.

Borrower-Paid Compensation

Compensation paid directly by a borrower for mortgage origination services where permitted and properly disclosed.

Borrowing Base

A limit on available credit tied to the value or eligibility of specified collateral or assets.

Broker Compensation

Compensation paid to a mortgage broker in connection with arranging a loan, subject to applicable rules.

Buydown

An arrangement that reduces the effective interest rate or payment for a period, typically through an upfront payment.

C

C Terms

18 terms

Cash Flow

Money received and paid over a period; in rental-property analysis it often refers to property income after specified expenses and debt service.

Cash Reserve

Liquid funds retained to cover expected or unexpected expenses after closing.

Cash-Out Refinance

A refinance in which a new mortgage replaces existing secured debt and provides eligible cash proceeds to the borrower.

Closing Costs

Fees and expenses associated with originating and closing a mortgage or home-equity transaction.

Closing Disclosure

A federal disclosure used for many closed-end mortgage transactions that shows final loan terms and closing costs.

Co-Borrower

A person who applies jointly and shares responsibility for repaying the debt.

Combined Debt Service

The total scheduled debt payments considered in a cash-flow or underwriting analysis.

Compensating Factor

A positive borrower or property characteristic that may offset another area of underwriting weakness.

Conforming Loan

A mortgage that meets applicable Fannie Mae or Freddie Mac purchase criteria and loan limits.

Construction Draw

A disbursement made as eligible construction or renovation work progresses.

Credit Freeze

A restriction placed with a credit bureau that limits access to a consumer credit file until lifted or thawed.

Credit Limit

The maximum amount that may be outstanding on a line of credit, subject to account terms.

Credit Line Increase

An approved increase to a revolving credit limit, generally subject to lender review and program rules.

Credit Report

A record of a consumer’s credit history obtained from a credit reporting agency.

Credit Score

A numerical score derived from credit-report information and used by many lenders as one factor in evaluating credit risk.

D

D Terms

19 terms

Daily Interest

Interest calculated using a daily rate applied to the outstanding principal for each day.

Debt Consolidation

Using new financing to pay multiple existing debts, potentially changing the rate, term, payment and collateral securing those debts.

Debt Service

Required principal and interest payments on debt, and sometimes other required loan-related payments depending on the calculation.

Debt Yield

A commercial-style ratio comparing property net operating income with loan amount; some lenders use related metrics in investment-property analysis.

Deed

A legal document used to transfer ownership of real property.

Deed of Trust

A security instrument used in many states to secure repayment of a real-estate loan.

Default

Failure to meet a contractual loan obligation.

Default Interest

A higher interest rate that may apply after specified defaults when permitted by the loan documents and law.

Deferred Maintenance

Repairs or upkeep that have been postponed and may affect property condition, appraisal or eligibility.

Delinquency

A payment that has not been made when due under the loan terms.

Discount Point

An upfront fee paid in exchange for a pricing or interest-rate adjustment, subject to the lender’s pricing structure.

Documented Rent

Rental income supported by documentation acceptable to a lender, such as leases, appraisals, tax returns or other records.

Draw

An advance of funds from an available line of credit.

Draw Freeze

A restriction or suspension of additional HELOC advances under conditions permitted by the agreement and law.

Draw Period

The period during which a borrower may generally take advances from a HELOC, subject to the account terms.

Draw Request

A borrower's request to advance funds from an available line of credit.

Due-on-Sale Clause

A provision that may permit a lender to require repayment if ownership of the property is transferred, subject to law and contract.

E

E Terms

8 terms

Early Closure Fee

A fee some HELOC programs may charge if the line is closed within a specified early period.

Effective Gross Income

Potential property income adjusted for vacancy, concessions and other income assumptions.

Entity Vesting

Holding title to property in a legal entity such as an LLC, subject to lender and legal requirements.

Equity

The difference between a property’s value and debt secured by the property.

Equity Cushion

The portion of property value remaining above secured debt, often viewed as a protection against value changes.

Escrow Account

An account used by a servicer to collect and pay certain property-related expenses such as taxes and insurance when required.

Escrow Waiver

Permission to pay eligible taxes and insurance directly instead of through a lender-controlled escrow account.

Exit Strategy

A planned method for repaying or replacing debt, such as property sale, refinance, amortization or operating cash flow.

F

F Terms

10 terms

Fair Market Rent

An estimate of market rental income used for analysis, valuation or underwriting depending on the program.

First-Lien HELOC

A HELOC that occupies the first lien position rather than sitting behind an existing first mortgage.

Fixed Rate

An interest rate that does not change during the specified fixed-rate period.

Fixed-Rate Conversion

A HELOC feature offered by some lenders that may allow part of a variable-rate balance to be converted to a fixed rate.

Flood Certification

A determination of whether a property lies in a designated flood hazard area for lending and insurance purposes.

Flood Insurance

Insurance that may be required for properties in certain flood-hazard areas.

Forbearance

A temporary arrangement to reduce or pause payments, subject to servicer or investor rules.

Foreclosure

A legal process through which a lender or lienholder may enforce its security interest after default, subject to applicable law.

Fully Indexed Rate

The adjustable rate calculated by adding the contractual margin to the current index, subject to applicable caps or floors.

Funding Fee

A fee associated with certain VA-guaranteed loans; applicability and amount depend on VA rules and borrower circumstances.

G

G Terms

2 terms

Grace Period

A short contractual period after a payment due date during which a late charge may not yet apply.

Gross Rent

Rental income before operating expenses and other deductions.

H

H Terms

5 terms

Hard Credit Inquiry

A credit report request made in connection with an application that can be visible to other creditors.

Hazard Insurance

Property insurance covering specified risks; mortgage lenders commonly require acceptable coverage.

HELOC

Home equity line of credit; an open-end line secured by home equity that allows repeated borrowing up to an available limit under the account…

Home Equity

The difference between a property's current value and debts secured by the property.

Home Equity Loan

A loan secured by home equity that generally provides funds as a lump sum and is often structured with fixed payments.

I

I Terms

10 terms

Index

A published benchmark used in the interest-rate formula for many adjustable-rate loans and HELOCs.

Index Rate

A published benchmark used with a margin to determine the interest rate on many adjustable-rate products.

Initial Advance

An amount some HELOC lenders may require or permit the borrower to draw at or shortly after closing.

Interest Accrual

The process by which interest accumulates on an outstanding loan balance over time.

Interest Rate

The percentage used to calculate interest charged on a loan balance.

Interest Rate Risk

The possibility that borrowing costs or asset values change as market interest rates change.

Interest Reserve

Funds set aside to make scheduled interest payments, generally in specialized lending structures.

Interest-Only Payment

A payment that covers interest due without scheduled reduction of principal, if permitted by the loan terms.

Investment Property

Real estate owned primarily for rental income, appreciation or investment rather than as the owner’s primary residence.

J

J Terms

No terms yet

K

K Terms

No terms yet

L

L Terms

14 terms

Landlord Insurance

Property coverage designed for rental property exposures rather than owner-occupied homeowner risks.

Late Charge

A fee that may be assessed when a payment is not received within the contractual grace period.

Lease Agreement

A contract defining the terms under which a tenant occupies rental property and pays rent.

Lender Credit

A credit from the lender that offsets eligible closing costs, usually in exchange for loan pricing considerations.

Lien

A legal claim or security interest against property securing an obligation.

Lien Position

The priority order in which liens are generally paid or enforced against a property.

Lien Release

A document or recorded action showing that a secured obligation has been satisfied and the lien removed.

Lifetime Rate Cap

The maximum rate increase allowed over the life of certain adjustable-rate products.

LLC

Limited liability company, a legal entity sometimes used to hold investment real estate.

Loan Estimate

A federal disclosure used for many closed-end mortgage transactions that summarizes estimated loan terms and closing costs.

Loan Modification

An agreed change to existing loan terms intended to address payment or servicing circumstances.

Loan Term

The period over which a loan is scheduled to be repaid or remains in effect.

Loan-to-Cost (LTC)

A leverage ratio comparing a loan amount with total project or acquisition cost.

Loan-to-Value (LTV)

A loan balance or loan amount divided by the property value, usually expressed as a percentage.

M

M Terms

11 terms

Margin

A percentage added to an index to determine the interest rate on many variable-rate products.

Market Rent

The rent a property could reasonably command in its current market, based on comparable rental evidence.

Maturity Date

The date on which the loan becomes due according to its terms.

Maximum CLTV

The highest combined loan-to-value ratio a lender or program permits for a transaction.

Minimum Draw

The smallest advance amount a HELOC lender permits for an individual draw or initial advance.

Mortgage

A loan secured by real property, or in some jurisdictions the security instrument associated with that loan.

Mortgage Balance

The amount of principal still owed on a mortgage, excluding or including other amounts depending on context.

Mortgage Broker

A person or company that may arrange mortgage financing with lenders, subject to licensing and compensation rules.

Mortgage Clause

Insurance-policy language identifying the lender's interest in the insured real property.

Mortgagee

The lender or creditor holding a mortgage interest in real property.

Mortgagor

The property owner or borrower granting a mortgage interest to secure debt.

N

N Terms

7 terms

Net Cash Flow

Cash remaining after specified operating expenses and debt obligations are deducted from income.

Net Cash Proceeds

Cash remaining to the borrower after applicable payoffs, financed amounts, fees and closing adjustments.

Net Operating Income (NOI)

Property income after specified operating expenses but before debt service, depreciation and certain other items, depending on the calculation.

Non-Owner Occupied

Property not occupied by the borrower as the borrower’s primary residence.

Note

The promissory document stating the borrower’s repayment obligation.

Notice of Right to Cancel

A disclosure describing a consumer's rescission rights for certain credit transactions secured by a principal dwelling.

O

O Terms

6 terms

Occupancy

How a property is used by the borrower, such as primary residence, second home or investment property.

Occupancy Affidavit

A signed statement concerning how the borrower intends to occupy or use the property.

Operating Expense Ratio

Operating expenses divided by effective gross income, used to assess property operating performance.

Origination Charge

A lender or broker charge associated with processing, underwriting or originating a mortgage transaction.

Owner Occupied

Property used by the borrower as a primary residence, subject to program definitions.

P

P Terms

18 terms

Partial Release

A lender's release of its lien from part of the collateral while the loan remains outstanding, when permitted.

Payment Cap

A limit on how much a scheduled payment may change during an adjustment period on certain loan structures.

Payment Shock

A material increase in required monthly payment compared with the borrower's prior housing or loan payment.

Payoff Demand

A statement of the amount required to satisfy a loan as of a specified date.

Payoff Statement

A statement showing the amount required to fully satisfy a loan as of a specified date.

Per Diem Interest

Daily interest charged for the period between closing and the beginning of the regular payment cycle.

Points

Upfront charges often expressed as a percentage of the loan amount; one point equals 1% of the loan amount.

Portfolio Lender

A lender that retains some loans in its own portfolio rather than selling them into a secondary market.

Prepayment

Paying some or all of a loan balance before scheduled maturity.

Prepayment Penalty

A charge that may apply when certain loans are paid off early, if permitted by law and contract.

Primary Residence

The home a borrower principally occupies, subject to lender and program definitions.

Prime Rate

A benchmark rate published by financial institutions and commonly referenced in variable-rate credit pricing.

Principal

The amount borrowed or the unpaid amount of a loan excluding interest and certain charges.

Principal Residence

The home a borrower occupies as a primary residence, a classification relevant to many lending and consumer-protection rules.

Property Condition Report

An inspection-style report describing the physical condition of a property, often used in investment or commercial lending.

Property Tax Escrow

Funds collected with mortgage payments and held to pay property taxes when due.

Property Type

The classification of real estate, such as single-family residence, condominium, townhome or 2–4 unit property.

Q

Q Terms

No terms yet

R

R Terms

16 terms

Rate Cap

A limit on how much an adjustable interest rate can change during specified periods or over the life of a loan.

Rate Floor

A minimum interest rate that may apply under a variable-rate loan formula.

Rate Lock

An agreement to hold specified loan pricing for a limited period, subject to the lender’s terms.

Rate-and-Term Refinance

A refinance primarily intended to change loan rate, term or structure rather than provide substantial cash to the borrower.

Recourse

A loan feature that can allow a lender to pursue a borrower's other assets or obligations beyond the collateral, subject to law and agreement.

Refinance

Obtaining a new loan to pay off and replace an existing loan.

Refinance Seasoning

A required period that may need to pass before a loan or property becomes eligible for certain refinance programs.

Rent Schedule

A list or analysis of rental units, contracted rents and related property income information.

Rental Loss Coverage

The amount of reserves or insurance protection intended to absorb periods when rental income is interrupted.

Rental Schedule

Documentation or appraisal analysis used to estimate or report market rent.

Repayment Period

The period after a HELOC draw period when additional draws generally stop and the outstanding balance is repaid according to the account terms.

Replacement Cost

The estimated cost to rebuild or replace insured improvements without deducting for depreciation.

Rescission Period

For certain transactions secured by a principal dwelling, federal law may provide a limited right to cancel after closing, subject to exceptions.

Reserve Requirement

A lender requirement that a borrower retain a specified amount of liquid assets after closing.

Reserve Requirements

Funds a lender may require a borrower to retain after closing, often measured in months of specified expenses or payments.

Revolving Credit

Credit that can generally be borrowed, repaid and borrowed again up to an available limit under the account terms.

S

S Terms

9 terms

Seasoning

A lender or program requirement concerning how long a borrower has owned a property, held a loan, or met another timing condition.

Second Home

A residence occupied by the borrower for part of the year that is not the primary residence and is not treated as an investment…

Second Mortgage

A mortgage or home-equity loan secured by property and subordinate to an existing first lien.

Servicer

The company that collects mortgage payments and performs servicing functions for a loan.

Servicing Transfer

The transfer of responsibility for collecting payments and administering a loan from one servicer to another.

Soft Credit Inquiry

A credit-file access that generally does not affect credit scores in the same way as a hard inquiry.

Subordination

An agreement or legal arrangement establishing that one lien will remain behind another lien in priority.

T

T Terms

12 terms

Tax Deductibility

Whether loan interest or other costs may be deductible under tax law; borrowers should obtain current tax advice rather than assume deductibility.

Temporary Rate Buydown

An arrangement reducing the borrower's payment rate for an initial period using funds contributed at or before closing.

Title

Legal ownership rights in real property and the records evidencing those rights.

Title Commitment

A preliminary title-insurance document describing proposed coverage, ownership, liens and exceptions.

Title Insurance

Insurance that protects against certain covered title defects or claims, subject to the policy terms.

Total Interest

The cumulative interest paid over a specified period or over the full life of a loan under stated assumptions.

Transaction Costs

Fees, charges, taxes and other expenses associated with completing a financing transaction.

Transfer Tax

A state or local tax that can apply when real property ownership is transferred.

Trust Vesting

Holding title to property in a trust, subject to lender, title and program requirements.

U

U Terms

4 terms

Underwriting

The process of evaluating a loan application, borrower, collateral and program requirements.

Undrawn Line

The unused portion of an approved revolving credit limit.

Unit Mix

The composition of units in a multifamily property, such as studios, one-bedroom and two-bedroom units.

V

V Terms

7 terms

VA Cash-Out Refinance

A VA-guaranteed refinance program that can replace qualifying existing secured debt and may provide eligible cash proceeds, subject to VA and lender requirements.

VA Entitlement

The portion of the VA home-loan guaranty benefit associated with an eligible veteran or service member.

VA Funding Fee

A one-time fee required on many VA loans unless an exemption applies under VA rules.

Variable Rate

An interest rate that can change after closing according to the loan terms.

W

W Terms

1 terms

Warehouse Line

A short-term credit facility mortgage lenders may use to fund loans before those loans are sold, refinanced, or otherwise moved off the facility.

X

X Terms

No terms yet

Y

Y Terms

1 terms

Yield Spread

The difference between two interest rates or yields; in mortgage markets it can describe pricing relationships between loan rates and funding or investor yields.

Z

Z Terms

1 terms

Zero Balance

A revolving account status in which no principal is currently outstanding even though the line may remain open.