A promissory note is legal document containing an unconditional promise by the maker (borrower) to pay a certain sum of money to a holder of the note (lender) on demand or at a specified future date.
Loan Terms
Prepayment Penalty
A prepayment charge, or penalty, is that sometimes imposed by a lender if the borrower pays off the loan prior to the maturity date. The charge can be expressed as a percent of the loan balance at the time of prepayment, a specified number of months of interest or a fixed amount.
Points
The origination fee is often expressed as points rather than a percentage of the loan amount. For example, 2 points means a fee equal to 2% of the loan amount.
Origination Fee
The origination fee is that charged by a lender, usually expressed as a percentage of the loan amount, for the work involved in evaluating, processing, documenting and funding a loan.
LTV
The LTV, or loan to value, is the relationship between the loan amount and the value of the property used as collateral, expressed as a percentage (loan amount/property value). Example: If the loan amount is $200,000 and the property is worth $400,000, the LTV is 50%.
Loan Guaranty
A loan guaranty is a promise by a person or an entity to assume a debt obligation in the event of nonpayment by the borrower. The person or entity that guarantees the loan is referred to as the guarantor.
