Banking Terms

• Amortization: The elimination of mortgage debt through regular payments over a specific length of time. Payments must be large enough to cover the principal and interest.
• Debt Ratio: A comparison between your total assets (gross income, money in the bank, equity in property, etc.) and total debts (credit cards, student loans, car loans, etc.).
• Deed: The legal document that transfers title of the property to the lender.
• Earnest Money: The funds you (the buyer) deposit with the seller to indicate serious interest in purchasing the space.
• Escrow: An account set up for you by the lender. Funds for your insurance and property taxes are held there until payments are required. The lender typically makes the payments for these expenses from this account.
• Equity: The difference between what you owe on the property (the mortgage) and what the property is actually worth. For example, you purchase a home for $115,000. Five years later, the property's value increases to $125,000, but you still owe $75,000 on your mortgage. The difference between the value of the property and the mortgage amount you owe is $50,000 ($125,000 - $75,000). You now have $50,000 in equity in the property.
• Interest Rate: The amount of money charged by the lender for using its money to purchase property. Is based on the risk of the loan and prevailing market rates.
• Lien: A legal claim against the property, used to secure loans; they must be paid first if the building is sold. Types of liens: property taxes, Internal Revenue Service-issued, court-ordered, etc.
• Mortgage: A type of loan specifically used to finance the purchase of real estate. Several types are available.
• Mortgagee: The bank, credit union or other financial institution that loans money to purchase real estate.
• Mortgagor: The borrower who accepts the loan from the lender.
• Principal: The original amount of money borrowed for the mortgage. Does not include the interest rate.
• Term: The length of time the borrower has to repay the principal with interest. Depending on the type of loan you choose, the longest mortgage term for residential properties is typically 30 years.
• Title: The legal document that denotes ownership of real estate.

Other terms and definitions will be defined as we go along.

You can access several super-glossaries of terms and definitions from Dictionary.com, Investor Words, Global Investor Glossary or ADVFN Financial Glossary.

For real estate terminology, visit the Real Estate Agent.com glossary.