Glossary of Agricultural Lending and Borrowing Terms

Acceleration Clause: A provision in the contract that gives the lender the right to demand repayment of the entire loan balance in the event that the borrower violates one or more clauses in the note.

Accrued Interest: Interest that is due but not paid back to the lender on the payment date, this amount is then added to the balance owed the lender.

Adjustable Rate Mortgage (ARM): A mortgage on which the interest rate, after an initial period, can be adjusted by the lender. The rate adjustment interval and the payment adjustment interval are the same on a fully amortizing ARM, but may not be on a negative amortization ARM.

Amortization: Paying off a debt with a fixed repayment schedule in regular payments

Amortization Schedule: A complete table of loan payments, showing the amount of principal and the amount of interest that make up each payment so that the loan will be paid off at the end of its term.

Balance Sheet: A statement of assets and liabilities at a particular point in time

Balloon: The loan balance remaining at the time the loan contract calls for full repayment.

Blended Rate: A weighted average of interest rates on all debt

Cash Flow: the total amount of money being transferred into and out of a business, especially as affecting liquidity.

Cash-Out Refinance: A mortgage refinance that allows borrowers to receive an amount of cash greater than what is required to repay the first mortgage and to refinance other associated loans. Closing costs are included in the cash-out calculation.

Fixed Rate Mortgage: A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage.

Float: Allowing the rate to vary with changes in market conditions.

Guarantor: A party promises to pay a debt or perform an obligation contracted by the original party if the original party fails to pay or perform according to a contract.

LIBOR: London Interbank Offered Rate

LTV: Loan-to-value, a comparison of the value of the loan to the value of the collateral

Lock: An option exercised by the borrower, at the time of the loan application or later, to “lock in” the rates of the market at that time. The lender and borrower are committed to those terms, regardless of what happens between that point and the closing date.

Mortgage: A written document evidencing the lien on a property taken by a lender as security for the repayment of a loan. The term “mortgage” or “mortgage loan” are used loosely to refer both to the lien and the loan. In most cases, they are defined in two separate documents: a mortgage and a note.

Note: Short for promissory note. This document gives the parameters of the loan and legally obligates the borrower to pay back the debt.

Points: A point is equal to one percent of the principal amount of a mortgage.

Power of Attorney: An authority by which one person enables another to act on his or her behalf. Power of attorney can be limited to specific areas or be general in some cases.

Pre-Payment Penalty: A charge the lender imposes if the borrower pays off the loan early.

Settlement costs: Costs that the borrower must pay at the time of closing. Settlement costs are included on the HUD-1 settlement statement.

Two pack mortgage: A combination of a first mortgage and a second. Typically, this consists of a line of credit followed by a term loan.

Verification of Deposit (VOD): A document signed by the borrower’s financial institution verifying the balances of the borrower’s financial accounts.


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