University of Illinois Extension

Glossary Terms

Adjustable rate mortgage (ARM) - is a mortgage loan where the interest rate on the note is periodically adjusted based on a variety of indices.

Automatic stay - An injunction that stops lawsuits, foreclosure, garnishments and all collection activity against the debtor the moment a bankruptcy petition is filed.

Balloon mortgage - Is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at the maturity of the loan. The final payment is called a balloon payment because of its large size.

Borrower - Is the one who gets a loan.

Cancellation of debt - When property is foreclosed on your debts that you are personally liable for - (recourse debt) you must report as ordinary income the amount by which the canceled debt is more than fair market value of the property.

Cash for Keys - encourage tenants to leave quickly and save court costs with eviction, banks offer tenants a cash payout in exchange for their rapid departure.

Cash-out - mortgage refinancing transaction in which the new mortgage amount is greater than the existing mortgage amount, plus loan settlement costs. The purpose of a cash-out refinance is to extract equity from the borrower's home. A cash-out refinance is an alternative to a home equity loan. Cash-out refinances are a popular way for borrowers to access the equity in their homes to pay down consumer debt or make additional purchases. Borrowers need to make a risk-based assessment of whether extracting equity from a home is economical. Borrowers also need to be aware that refinancing a mortgage has costs, including the fact that the lender may charge a higher interest rate on a cash-out refinance than a rate-and-term refinance.

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