Glossary of Home Equity Terms

It is important for anyone looking into a home equity loan to understand the terms that are used in describing a home equity loan.


-Access card is the card that you will use to access the funds from your home equity loan.

-An affordability calculator is one of the many tools that a person can use to see just how much they can afford monthly.

-Amortization is the time table for how long it will take to pay off the loan. For example, amortization is ten years.

-Annual Percentage Rate refers to the total cost of the loan, including factors such as rates, points, insurance and so on.

-Annual fee is the fee that the lender charges for having the loan.

-Application fee is the fee that is charged in order to begin applying for a loan that covers origination costs or upfront fees.

-Appraisal fee is the fee that is charged for an individual to look at the property to deem its value.


-Balloon payment is a final payment that is due at a sacrificed time.

-Borrower is the person who is applying for the loan and intends to use the money.


-Cap is the limit as to which the interest rate can go during a time period. For example, the cap is 13.5%.

-Closing costs are those costs on the borrower for finalizing a home equity loan or line of credit.

-Conversion fee is charged when the borrower converts a variable rate to a fixed rate.

-Credit history is the history of the borrowers repayment history and overall credit worthiness.

-Credit score is what lenders will use to deem whether the borrower is credit worthy or not and is calculated from the credit history, among other aspects.


-Draw period is the time frame from which a person can withdraw money from their home equity loan.


-Equity is the amount of money available to use that is calculated by the value of the home minus any amount owed on the mortgage.


-Fair Issac Corporation is the developer of the FICO score, which is used by lenders to account the credit worthiness of the borrower


-Home Equity Loan is a fixed rate loan in which the home is the collateral.

-Home Equity Line of Credit is a line of credit where the home serves as collateral.


-Index is used by the lenders to calculate the rate of the loan.

-Interest only means that the borrower pays only the interest to the lender monthly.

-Interest rates are charged on a loan for the privilege of the borrower using the money.


-Loan to value ratio is the amount of the mortgage divided by the appraisal amount of the house.


-Margin is the difference between the interest rate and index of a loan.


-Negative equity occurs when the current value of the home is worth less than the amount that the borrower owes.


-Point is the upfront fee that the lender may charge the borrower for taking out the loan.

-Prime rate is the rate that banks advertise that they will charge, however many factors play into whether the borrower will get this or not.


-Subprime is a type of loan that is offered to those that have poor credit.

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