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Home Equity Glossary of Terms

Get definitions to some common Home Equity terminology!

Turn the equity in your home into the things you need and want.

Get the most out of your home's equity. 

The following terms may be a refresher course for you - or possibly your first introduction to a Home Equity Loan or Line of Credit. Whatever the case, we're always here and available for questions you may have. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Home Equity Glossary of Terms

A timetable for the gradual repayment of money borrowed.
An annual charge imposed by the lender for maintaining a loan. Providence Bank does not charge an annual fee on Home Equity financing.
The cost of a loan expressed as a percentage rate. It includes both the interest rate on the loan and many of the costs in getting the loan. APRs are the best way to compare loans.
The fee an appraiser charges to assess the property value of a property.
This is the very large payment that is due at the end of some loans. A balloon payment means that the borrower’s monthly payments are used to pay the interest on the loan and that a small portion of the payment is used to pay back the principal amount that was borrowed. Unless you know how you will make this payment, these loans can be risky.
A person who borrows money from a lender.
A limit on how much a variable-interest rate can increase during the life of the loan.
Closing
The meeting where you review and sign your loan papers.
 
Closing Costs
All of the "other" costs that are assessed when borrowing money. They could include fees for credit reports, land survey, appraisal, title search, title insurance, document preparation, notary, and attorney fees.
A borrower’s pledge of specific property to a lender, to secure repayment of a loan.
Credit History
A borrower’s record of past payment history.
 
Credit Insurance
An insurance policy (such as life, disability, or unemployment) that pays the lender the balance of the loan if something happens to the borrower before the loan is paid off. Sometimes the lender adds the entire price of the policy to the amount you are borrowing, and this is very expensive because you pay interest on that amount. Providence Bank does not offer Credit Insurance on Equity financing.

Credit Limit
The maximum amount that you can borrow under the Home Equity Loan or Line of Credit.
 
Credit Report
Credit bureaus collect information about your credit history—where you owe money, how much you owe, your credit cards, and your payment history. Lenders determine whether to give you a loan and how much to charge you based on information in your credit report.
 
Credit Score
Your credit score is a number that is used by lenders to decide whether to give you credit and at what cost. It is based on information in your credit report.
Draw
The act of taking money from a Home Equity Line of Credit.
 
Draw Period
The amount of time you can withdraw funds from a Home Equity Line of Credit. For instance, a 10-year draw period allows you to withdraw the money for a period of 10 years. After the draw period ends, you are responsible for repaying the loan.
The difference between what your house is worth and what you owe on it. For example, if your house is worth $150,000 and you owe $100,000, your equity is $50,000.
The Fair Issac Corporation® developed the FICO® credit score, which is used to judge a borrower’s creditworthiness.
A fixed interest rate loan, or installment loan, that does not charge or adjust during the course of the loan.
Home Equity Loan (HELOAN)
A fixed rate loan, or installment loan, in which your home serves as collateral.
 
Home Equity Line of Credit (HELOC)
A form of revolving credit in which your home serves as collateral
Index
The base rate for charges that the lender uses to decide how much the annual percentage rate will change over time. Providence Bank uses the Wall Street Journal Prime Rate as published in the Money Rates section.
 
Interest Only
The monthly payment amount owed to a lender which covers the interest-only portion of the amount borrowed. Your equity does not increase with this type of loan since you are not paying down the principal.

Interest Rate
The percentage rate lenders charge you for using their money. The higher the percentage, the more you pay.
A special introductory rate on an adjustable rate on a Home Equity Line of Credit which is below current market rates to entice borrowers.
A person or company which lends money to borrowers.
A pre-approved amount that you can borrow. You only borrow what you need, when you need it.
The amount of a mortgage loan divided by the appraised value or sale price.
A percentage the lender adds to the index rate to determine the annual percentage rate.
The minimum amount that you must pay (usually monthly) on your account. The minimum allowable payment may be “interest only” or if you choose, the minimum payment may include principal and interest.
The fee charged to modify the terms of your loan agreement.
Negative Equity
When the current market value of a property is less than the amount owed.
 
Origination Fee
A fee that is charged upon closing of a loan.
 
Predatory Lenders
Lenders who take advantage of borrowers and make loans that the borrowers cannot afford. They may charge very high interest rates or fees, hide costs, or lie about loan terms.
 
Pre-payment Penalty
A penalty for paying a loan early before its due date. Providence Bank does not charge a pre-payment penalty on Equity financing.
The rate of interest publicly announced periodically by a lender. It is based on various factors, including banks’ costs and desired return, an it is used as a reference point for pricing some loans. Providence Bank uses the Wall Street Journal Prime Rate as published in the Money Rates section.
Principal
The amount of money that you borrow.
 
Principal & Interest (P&I)
The amount of a Home Equity Loan payment including the principal and the interest. On a Home Equity Line of Credit, the payment is calculated at 1.5% of the principal balance.
Replacing an older loan with a newer one.
This is the total amount of all fees, monthly and balloon payments that you will pay over the life of the loan.
A fee charged each time you draw on your line of credit. Providence Bank does not charge any transaction fees.
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.