HELOCs and Real Estate Financing - Vocabulary Flashcards

Vocabulary flashcards covering key terms from the HELOC and real estate financing lecture transcript, including loans, liens, and foreclosure concepts.

HELOC

Home Equity Line of Credit; a revolving line of credit secured by home equity, allowing you to draw funds as needed, pay interest only on drawn amounts, with a draw period followed by amortization. For example, similar to a credit card for your house, you can borrow, repay, and borrow again against your home's value.

Cash-out refinance

A refinance that replaces your existing mortgage and provides extra cash from the increased loan amount. For example, if you owe $200,000 on a home worth $300,000 and refinance for $250,000, the $200,000 pays off the old mortgage, and you receive $50,000 in cash.

Prepayment penalty

A monetary penalty charged for paying off a loan early, common on some residential loans; this is not a universal prohibition. For example, if your mortgage has this penalty and you sell your house two years into a 30-year loan, you might owe an extra fee for the early payoff.

Prepayment clause

A loan clause that governs early repayment terms, potentially including penalties or restrictions. For example, before signing a mortgage, checking this clause will tell you if paying off your loan sooner than planned will incur additional costs.

Security instrument

A legal instrument that pledges collateral to secure a loan, such as a mortgage or a deed of trust. For example, the document that states your house can be taken by the bank if you fail to pay your mortgage is a security instrument.

Mortgage

A security instrument pledging real property as collateral; typically foreclosed through a judicial process. For example, when you buy a house, you sign a mortgage meaning the bank can get a court order to sell your house if you stop making payments.

Deed of trust

A security instrument pledging real property; involves a trustee and allows non-judicial foreclosure with notice. For example, similar to a mortgage, but if you default, a third party (the trustee) can sell your property without court approval after giving notice, common in states like California.

Non-judicial foreclosure

Foreclosure conducted without court involvement, usually under a deed of trust. For example, if you have a deed of trust and default, the bank can proceed to sell your home after proper notice, typically without requiring a judge's involvement.

Judicial foreclosure

Foreclosure processed through the court system, typical with standard mortgages. For example, if a bank wishes to reclaim a house under a standard mortgage, they must file a lawsuit and secure a court's approval for the sale.

UCC1 financing statement

Initial filing to perfect a security interest in personal property; filed with the state Secretary of State. For example, a business borrowing money and using its specialized machinery as collateral would file a UCC1 to officially notify others of the lender's claim on that machinery.

UCC3 release

Filing to terminate or amend a previously recorded UCC financing statement. For example, once a business pays off the loan secured by its machinery, a UCC3 is filed to remove the lender's claim on that specific equipment.

Real property

Land and fixed improvements; pledged as collateral through a mortgage or deed of trust. For example, your house, the land it occupies, and built-in fixtures like kitchen cabinets are considered real property.

Personal property

Movable property (equipment, furnishings, etc.) that may be secured with a UCC filing rather than real estate security. For example, a company's delivery trucks, computers, or office furniture are examples of personal property because they can be moved.

Assignment of rents

A clause allowing the lender to collect tenants' rents if the borrower defaults. For example, if you own an apartment building and default on your mortgage, this clause enables the bank to directly collect rent from your tenants instead of you.

Standby commitment fee

Fee for the unused portion of a commercial line of credit; typically 1-2\% upfront and about 1\% annually. For example, a business might pay this fee to ensure a bank has $1,000,000$ ready for them to borrow; if they only use $100,000$, they pay a fee on the remaining $900,000$ they haven't touched.

Draw period

Initial period (e.g., 10 years) during which you can draw funds on a line of credit. For example, for the first 10 years of your HELOC, you can pull money out as needed, similar to how you would use a credit card.

Amortization

Schedule by which the loan balance is paid down over time; for HELOCs, often after the draw period with a longer amortization (e.g., 15-20 years). For example, after the draw period on your HELOC, you begin making fixed monthly payments that gradually pay off both the interest and the principal balance over, say, 15 years.

Loan-to-value (LTV)

Ratio of loan amount to appraised property value; typical HELOC caps around 75-80\%, historically higher before crises. For example, if your home is appraised at $200,000$ and you want to borrow $160,000$, your LTV is 80\% ({160,000} \div {200,000} = 0.8).

Equity

The portion of the property's value not encumbered by debt; equity provides borrowing power for lines of credit. For example, if your home is worth $300,000$ and you owe $100,000$ on your mortgage, you have $200,000$ in equity ({300,000} - {100,000}), which you can potentially borrow against.

Forfeiture

Immediate loss of property under certain contracts (e.g., layaway/contract-for-sale) upon default, differing from traditional foreclosure. For example, if you buy furniture on a 'rent-to-own' plan and miss a payment, the store might immediately take the furniture back, and you lose all payments made, which is a forfeiture.

Contract for sale (layaway)

Buyer pays in installments while the seller retains title; default can trigger forfeiture of the property. For example, when you buy an appliance with a 'contract for sale,' you make payments, but the store still legally owns it until the last payment; if you miss a payment, they can take it back, and you lose what you've paid.

Right of redemption

Ability to reclaim foreclosed property by paying the debt; availability and extent vary by loan type and jurisdiction. For example, after your house is foreclosed, in some states, you might have a short window, say 60 days, to pay off the entire debt and regain ownership of your house.