Debt Consolidation Glossary of Terms

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Glossary - C

call option
A clause in a mortgage that gives the lender the right to request the balance at any time.

cap
The top limit on the amount the interest rate can increase during a single time period of an adjustable-rate mortgage. Every ARM has two caps: a periodic cap, which limits the periodic changes to the interest allowed in the loan agreement, and a lifetime cap, which governs the total increase that can be imposed during the life of the loan.

capital improvement
The process of adding any permanent structure or other asset to a property that adds in order to add its value.

cash-out refinance
The taking out of a new mortgage on the same property in which the amount borrowed is greater than the amount of the previous mortgage. The difference is taken out in cash.

Certificate of Eligibility
A document that verifies that the bearer is eligible for a loan guaranteed by the Veterans Administration.

certificate of title
A statement provided by a title company or attorney stating that the title to a property, other real estate, or vehicle is legally held by the current owner.

chain of title
Legal records that trace ownership of a property from the most recent owner to the original owner.

change frequency
The scheduled period in which an adjustable-rate mortgage adjusts.

clear title
A title that is free of liens or legal questions as to ownership of a piece of property.

closing
The meeting at which the sale of a property is completed. The buyer signs the lender agreement for the mortgage and pays closing costs and escrow amounts. The buyer and seller sign documents to transfer ownership of the property.

closing costs
Expenses incurred by buyers and sellers when transferring ownership of property. Closing costs normally include an origination fee, attorney's fee, taxes, escrow payments, title insurance and sometimes discount points.

closing statement
A standard form that discloses costs at completion of the sale of real estate, including discount and origination points, settlement fees, title insurance, brokers’ fees and commissions and money set aside in escrow. Typically called a HUD-1 statement.

cloud on title
A claim on title to property that could impair the ability to transfer ownership.

collateral
Property pledged as security to a debt. If the borrower fails to repay the loan, the lender may gain ownership of the collateral and sell it to recover the money.

collection
Steps a lender takes to bring a delinquent mortgage up to date or to begin the foreclosure process.

combined loan-to-value ratio(CLTV)
A person's overall mortgage debt load, expressed as a percentage of the home's fair market value. Someone with a $50,000 first mortgage and a $20,000 home equity loan secured against a $100,000 house would have a CLTV ratio of 70 percent.

co-maker
Any party that co-signs a promissory note. All co-makers assume responsibility for the loan if any of the other co-signers renege.

commission
Compensation paid to a real-estate agent or mortgage broker. Often the commission is a percentage of the selling price or the amount borrowed.

commitment letter
A formal offer by a lender stating the approved terms for lending money to a home buyer.

common areas
In a condominium or housing development, property that is not owned by individuals but by all owners collectively.

community property
Possessions, real estate and profits that a husband and wife receive during the marriage, excluding gifts and inheritances. Upon divorce, community property is distributed equally. This legal concept is recognized in the states of Arizona, California, New Mexico, Idaho, Nevada, Texas and Washington.

comparables
Refers to "comparable properties," which are used for comparative purposes in the appraisal process. Comps are recently sold properties that are similar in size, location and amenities to the home for sale. Comps help an appraiser determine the fair market value of a property.

condominium
A type of property in which owners hold title to the space they occupy in a multi-unit dwelling. The property is divided between living units and common areas such as parking lots, driveways, elevators, and recreation areas such as playgrounds and swimming pools. Common areas are collectively owned by all owners.

condominium conversion
The process of converting rental apartments, which are leased by the occupants, into condominium units, which are owned by the occupants.

conforming loan
A mortgage that meets the requirements to be eligible for purchase or securitization by one of the government-sponsored enterprises such as Fannie Mae, Freddie Mac and Ginnie Mae. Requirements include size of the loan, type and age.

construction loan
A short-term, interim loan to pay for building a house. The lender pays out the money in stages, called draws, as work progresses.

contingency
A condition that must be met for the property sale to go through, such as a satisfactory home inspection or approval for a mortgage.

contract
In real estate parlance, the contract is the legal document by which buyer and seller make offers and counteroffers. The real estate contract describes the property, includes or excludes items in the property, names the price, apportions the closing costs between the parties and sets forth a closing date. When buyer and seller agree on terms and sign the same document, the property is said to be "under contract." More formally known as agreement for sale, purchase agreement or earnest money contract.

conventional mortgage
Usually refers to a fixed-rate, 30-year mortgage that is not insured by the FHA, Farmers Home Administration (FmHA) or Veterans Administration.

conversion clause
A provision that may appear in an adjustable-rate loan agreement allowing the loan to be changed to a fixed-interest rate loan, usually for an additional charge.

convertible ARM
An adjustable rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

cooperative (co-op)
A type of multiple ownership in which a corporation owns property (usually an apartment building) and the occupants own shares in the corporation equal to their portion of the building.

corporate relocation
A situation in which an employer transfers an employee and pays moving expenses.

cost of funds index (COFI)
A yield index based upon the cost of funds to savings & loan institutions in the San Francisco Federal Home Loan Bank District. It is one of the indexes commonly used to set the rate of adjustable rate mortgages.

covenant
A promise made in a contract or property deed.

credit
Money that a lender gives to a borrower on condition of repayment over a certain period.

credit history
A record of a person's debt payments.

credit report
A report that contains information about your borrowing habits and money-managing skills. Lenders use it to determine whether to approve a loan and to set the terms. A person with a good credit report is likely to get a better interest rate than someone with a poor credit report.