Accrued Interest:  The amount of interest earned on a note, but not yet received in payment.  An example would be a straight note (no payments).  At the end of the first year the balance owed would be the original principal plus one year’s accrued interest.

Add-On Interest:  The interest rate is applied to the loan amount to get yearly interest.  This is multiplied by the number of years.  This total interest is added on to the loan balance.  The monthly payment is calculated by dividing this number (principal plus add-on interest) by the number of payments.  This method contrasts with charging interest on the remaining principal balance.

Adjustable Rate Mortgage (ARM):  A mortgage or other real estate loan wherein the interest rate and payments that correspond to the interest are adjustable from year to year according to some index such as the rate paid by the government on Treasury Bills.

Algebraic Logic:  The calculator logic of putting the operation sign (plus, minus, times or divided by) before the number is entered.

All-Inclusive Deed of Trust:  A note secured by deed of trust that “wraps around” a smaller senior loan.  The debtor pays the holder of the wrap who in turn pays the included senior lien.  See also “Wraparound Mortgage.”

Amendment Of A Note:  Changing the interest, payment schedule, or due date on an existing note without without writing a new note.

Amortization:  The payments on an amortized loan are established to contain both principal and interest so that the loan will be paid off in full by the end of the amortization period.

Annual Percentage Rate (APR):  The true cost of a loan to a borrower as required by the Truth in Lending Laws.

Arrears:  1)  Behind in making payments, as in “The payments were 3 months in arrears.”  2)  Later than earned, as in “Loan interest is paid in arrears.  The interest for May is paid in the June payment.”

Assignee:  The person acquiring a note from a previous holder.  Assignment:  Transfer of the rights of a note from one holder to another.  Assignor:  The person giving up ownership of a note to a new holder.

Balloon Payment:  A large payment on a note, usually due at the end of the payment schedule.  There can also be partial balloon payments during the note term.

Beneficiary:  The person entitled to receive the payments on a note.

Blended Rate:  The overall interest rate when two or more loans are on a property.  It is higher than the rate on the lowest rate loan and lower than the rate on the highest interest loan.  Also called Overall Rate (OAR).

Boiler Plate:  Slang for standardized legal language or template format writing often used in loan forms, real estate closings, and legal contracts.

Buy Down:  In order to reduce the interest and payments on a loan for the buyer, the property seller may pay the lender some money up front to “buy down” the interest and payments for a certain period of time.  Example: The seller buys down a 30-year loan at 14% interest so that the buyer of the property only pays 11% interest for the first 2 years.

“Carry Paper”:  For a property seller to take part or all of the sale price of the property in the form of a secured note.  Example:  The seller carried $20,000 in paper to facilitate the sale of his property.

Cash Flow Diagram:  A graphic representation of a series of cash flows, in or out or both, showing how much and their timing.

Clear:  Remove previous instructions and data from the calculator so they will not interfere with the next calculations.  You can clear the program, the financial registers, the storage registers, and the display.

Closing:  Completion of a transaction, including details like preparation and recording of legal documents, procurement of applicable insurance coverage, and transfer of funds.

Closing Costs:  The various fees and charges involved in closing a transaction.

Collateral:  Property pledged as security for performance of an obligation.

Collection Service:  A neutral third party, other than the borrower or lender.  The collection agency or collection service collects the payments due on a note and forwards the proceeds to the proper recipients.

Compounding:  The situation where interest accrues and then gathers interest.  Example: A $310,000 straight note (no payments) with 12% compound monthly interest earns $91,200 the first year.  Adding that  to the original principal gives the next year starting balance of $401,200.  This sum will earn 12% interest.  The process repeats each year.

Compound Interest:  See Compounding.

Constant (Loan Constant):  The yearly payment on a loan divided by the remaining principal balance.  As amortized loans are paid down, the Loan Constant increases.

Contract For Deed:  A form of security instrument and debt contract wherein the owner of the property gives the buyer legal title only after the obligation has been paid in full.  See Land Contract.

Courthouse:  Place where deeds and real estate paper are recorded.  See also Recorder’s Office and Registrar of Deeds.

Credit Report:  The report on a person’s credit standing issued by a credit information bureau such as Experian.  It shows what credit a person has been granted and what their payment record is.

Creditor:  The person to whom money is owed.

Current:  Payments are current when they are up to date.

Current Principal Balance:  The balance currently owed on a note, which may be smaller or larger than the original principal balance.