Home Equity loans: Glossary of terms and their definitions | HSBC

Glossary of Home Equity terms and their definitions

The answers you need about home equity

If you have questions about home equity, this glossary of terms can help. Click on any of the terms displayed below to learn more:

Access Period
– The term, or amount of time, you have to use (or access) your approved home equity line of credit.

– Repayment of a loan with periodic payments of principal and interest. The payments are calculated so that the debt is paid off at the end of a fixed period.

Annual Percentage Rate (APR)
– The APR is the cost of credit, including costs and fees, expressed as a yearly percentage rate.

– A report prepared by a qualified real estate appraiser which creates an estimate of the fair market value of a property.

– The final step in the home equity process after a line of credit or loan is approved. The closing is a meeting between all parties involved in the transaction during which required legal documents are signed (also known as a settlement).

Closing Costs
– Fees paid to third parties or the bank. Some examples of closing costs are title insurance, attorney fees, appraisal fees, recording fees and taxes.

– Property pledged as security for repayment of a loan.

Credit Score
– A numerical rating provided on a credit report that establishes creditworthiness based upon a person's past credit/payment history and their current credit standing.

Debt-to-Income Ratio
– Relationship of a borrower's monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage. Your total monthly recurring debt plus total monthly housing debt can be no more than 36-40% of your total gross monthly household income for most mortgage loans (also known as bottom ratio).

– The amount by which the value of the borrower's home exceeds the amount owed on the mortgage loan. If the borrower's home is worth $100,000 and the borrower owes $65,000 on the mortgage loan secured by the borrower's home, then the borrower's equity in that home is $35,000, or 35% equity in the home.

Escrow Account
– An account established with a mortgage lender comprising funds from a borrower used to pay taxes and insurance premiums when they become due. (Also known as impounds)

First Mortgage
– A mortgage whose lien is superior to the lien of any other mortgage on the same property. This lien is superior either because it was recorded prior to all other mortgages, or because the mortgagee of another mortgage that had been recorded ahead of this mortgage has agreed to have a lien subordinated to the lien of this mortgage.

Good Faith Estimate
– An estimate of the fees a mortgage borrower will be required to pay at closing. It is required by Federal law that the lender provide the Good Faith Estimate within three business days of the initial loan application.

– An encumbrance on property that acts as security for the payment of a debt or the performance of an obligation. A mortgage is a lien. A lender will want most, if not all, liens on the property removed before making a mortgage loan.

Loan-to-Value Ratio
– The mortgage amount divided by the lower of the purchase price or the appraised value of the property. This ratio is expressed as a percentage. A lender will use this ratio in determining the maximum mortgage loan that it will make on the property.

– The value of the index used for a line of credit.

– The second step in the home equity application process, which involves the verification of information stated on the application. Credit reports and the appraisal are also ordered at this time.

Property Insurance
– Insurance taken on a property to protect the owner against property damage and other unforeseen occurrences. Property insurance is required by lenders for mortgage and home equity loans. Flood insurance may also be required.

Recording Fees
– The fee charged by the recorder's office to record a document such as a mortgage, deed of trust, deed and UCC Financing Statement.

– New loan used to pay off an existing mortgage on the same property.

Repayment Period
– The term is the amount of time you have to pay back any funds you have used (or accessed) from your home equity line of credit.

– Activities the lender performs, such as collecting the payments and/or paying taxes and insurance from an escrow account.

Stated Income
– A type of mortgage or home equity loan where the borrower "states" his or her income, but is not required to supply written proof of that income. Lender still takes certain steps to verify income is accurate.

– Written evidence of the ownership of property, such as a property deed.

Title Search
– A process that examines local public records, laws and related court decisions to determine if any other parties have valid claims against the subject property (such as past-due taxes, judgments or mechanics' liens). It also discloses past and current facts about the subject property's ownership.

Title Insurance Policy
– In real estate, an insurance policy by which the insurer agrees to pay the insured (purchaser, mortgagee, etc.) a specific amount for any loss caused by defects of title to the subject property.

Truth-in-Lending Disclosure
– Federal law requires that the lender must give this document to the home buyer within three business days after loan application. This disclosure gives details of the mortgage payments along with the corresponding APR and finance changes.

– In mortgage and home equity lending, the decision-making process used to determine whether the loan risk is acceptable to the lender. Underwriting involves the satisfactory review of the property appraisal and examination of the borrower's ability and willingness to repay the debt.

Mortgage and home equity products offered in the U.S. by HSBC Bank USA, N.A.. Subject to credit approval. Borrowers must meet program qualifications. Programs are subject to change. Geographic and other restrictions may apply. Discounts can be cancelled or are subject to change at anytime and cannot be combined with any other offer or discount.

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