Plain English Glossary for Debt

Home financing, credit cards, student loans… we cover the most commonly used terminology for all of your debts.

Adjustable-rate mortgage (ARM): The Annual Percentage Rate is just a wonky way to say interest rate or “the effective annual cost to you the borrower.” This is the charge you'll pay on credit taken over a year - expressed as a percentage of the total borrowed - including any monthly, annual or up-front charges.

Amortized Loan: A loan to be repaid in regular installments as a combination of principal and interest. These payments should be nearly equal each time. Annual Fee: The yearly amount you’ll be charged for having a credit card or other loan-borrowing product, regardless of how much you use it.

APR: The Annual Percentage Rate is the charge you'll pay on credit taken over a year - expressed as a percentage of the total borrowed - and includes the basic interest rate plus any monthly or annual charges.

Balance transfer: When you move (or transfer) the money you owe (the balance) on one card or loan to another credit card. Many providers offer attractive introductory rates to move your money to their card with a handling fee, expressed as a percentage of the total.

Borrower: The individual who applies for, receives, and becomes responsible for repayment of a loan.

Cash-out refinance: When a mortgage is refinanced so that the new loan exceeds the amount of the original loan, giving the borrower cash.

Closing costs: Processing fees paid when a mortgage is finalized.

Credit bureau: An organization that collects information on borrowers and charges a fee to lenders or others to access the information. The US has three major credit bureaus: Transunion, Equifax, and Experian.

Credit limit: The maximum amount you can borrow on a card at any one time, whether through purchases, cash advances or balance transfers. If you go over your limit, your card will normally be declined, or sometimes you might be charged extra. Credit limits are set when you apply for your card, but you can ask the card issuer to change it later.

Credit report: A record of borrowing history given by a credit bureau.

Credit score: A number that summarizes how likely a borrower is to repay a loan. Find out your credit score here.

Co-Signer: An individual who will assume responsibility for repayment of a loan, but will not own or reside in the property.

Debt consolidation: Combining multiple loans into one single loan.

Debt Optimizer (or “Roboadvisor for Debt”): A user-interactive tool that provides recommendations for how users should (or shouldn't) change their debt profile in order to save money.

Debt-to-income (DTI) ratio: Debt-to-income ratios compare your core monthly expenses versus how much income you make. It is expressed as a percentage. Use our calculator to find out your DTI.

Default: Failure to meet the agreed upon terms (e.g. schedule payment) of a loan.

Down payment: The difference between the cost of the home and the loan amount. The buyer is responsible for providing the down payment, usually in cash and as a percentage of the purchase price.

Escrow: A common procedure when a third party carries out the instructions of both the buyer and seller, and handles all paperwork and disbursements of funds at settlement or closing.

Equity: The difference between the value of your home and the remaining balance of your loan.

FHA home loan: These mortgages are insured by the Federal Housing Administration (FHA) in the government. This insurance protects the lender and can help lenders provide loans they are usually unable to.

First lien mortgage: A mortgage in which the home is used as collateral. If you can not pay for the mortgage the home will be sold to pay back the loan.

Fixed rate mortgage: A mortgage in which the interest rate does not change through the course of the loan.

Gross monthly income: The total amount of monthly income received before taxes, withholdings, and expenses.

Home equity line of interest (HELOC): A loan that allows a person to borrow against the equity they have in their home. This is also called a second mortgage.

Interest: Typically a percentage of the purchase price or balance of credit that is charged to the borrower for use of loan (money).

Lender: The company that makes a loan, e.g. Quicken

Lienholder: The lender which holds your loan until you finish payments.

Market Data: Loan rate (and other) data available on the lender market that borrowers might be able to benefit from (if lender options are favorable to their loan parameters/situation).

Minimum payment: The lowest amount you need to pay on your credit card balance each month - usually a percentage of the total. Some cards may incur an interest rate on the debt amount you choose not to pay. If you pay less than the minimum (or nothing at all), you're likely to be charged a late fee. Missing repeated minimum payments can damage your credit rating or even result in legal action.

Mortgage Tools: A series of calculator tools that we provide to users to calculate whether they could benefit from changing or considering lenders based on our underlying mortgage market data.

Points: The amount paid at closing to lower the interest rate paid.

Premium: an insurance premium is the amount of money an individual or business pays for an insurance policy. It refers to the monthly payment charged by an insurance company to provide coverage, protecting the policyholder against specific risks.

Pre-approval: Verified assessment of a borrower's income, credit, and assets that qualifies them for a specific loan program, at a specific amount and interest rate.

Price Monitoring: A product that allows users to be pinged with a text message and/or email message indicating that a rate / points+credits combination has become favorable against the market rates.

Primary Residence: The place where an individual actually lives and is considered the legal residence for tax purposes.

Principal: The amount of debt + interest remaining on the loan.

Rate-term: Holds the loan amount the same and merely adjusts the rate and term.

Refinancing: The process of replacing a current loan with a new loan under different terms. See which of your loans should be refinanced with the Debt Optimizer.

Refinance Monitoring: A product that allows users to be pinged with a text message and/or email message indicating when they should refinance (given the debt parameters that we have stored for them)

Reserves: Liquid or near liquid assets (cash or equivalent) available to the borrower after the mortgage has closed.

Title: The document / evidence of the right to ownership of a property.