Loan vocabulary

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What is a mortgage?

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A mortgage is a type of loan specifically used to purchase real estate, where the property itself serves as collateral for the loan.

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What does a lending institution do?

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A lending institution is a business or organization that provides loans to individuals or businesses, typically charging interest on the borrowed amount.

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What is a co-signer?

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A co-signer is a person who signs a loan agreement alongside the borrower, agreeing to pay back the loan if the borrower fails to do so.

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What is collateral?

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Collateral is an asset of value that a borrower offers to a lender to secure a loan, which the lender can claim if the borrower defaults.

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What is the purpose of a loan?

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The purpose of a loan is to provide funds to individuals or businesses for various needs, such as purchasing a home, financing education, or starting a business.

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What is interest in terms of loans?

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Interest is the cost of borrowing money, usually expressed as a percentage of the loan amount, which the borrower pays to the lender.

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What does it mean to qualify for a loan?

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To qualify for a loan means to meet the lender's criteria, such as credit score, income, and debt-to-income ratio, to be approved for borrowing.

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What is a loan term?

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A loan term is the duration over which the borrower agrees to repay the loan, typically expressed in months or years.

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What is an amortization schedule?

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An amortization schedule is a table that outlines each payment on a loan, showing the amount applied to principal and interest over time.

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What is a down payment?

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A down payment is an upfront payment made by the borrower when purchasing a home, typically expressed as a percentage of the purchase price.