Home Loan Glossary – K & L

K

Keogh Plan

The Keogh plan is a retirement plan for those who are self-employed. Contributions to Keogh plans, within precise limits, are deductible from gross income for tax purposes. Taxes on the plan contributions and interest earned are paid at the time of retirement when the funds are claimed, when most people are in a lower tax bracket.

L

Late Charge

A late charge is a fee incurred by a borrower when a home loan payment is made late – usually 10 to 15 days after its due date.

Lease

A lease is a written agreement between the property owner and a tenant renting the property that specifies the conditions under which the tenant may use the property and the obligations of the owner. The lease agreement's conditions include such details as the amount of rent to be paid and the length of the lease.

Leasehold Estate

This is the tenant's interest in, or right to hold possession of, the property that is being leased to him or her.

Lease-Purchase Mortgage Loan

A lease-purchase mortgage is used when a non-profit organization buys (or sometimes renovates) homes, and then leases them to lower-income families with an option to buy. This type of transaction is offered under the Community Homebuyer's Program.

Legal Description

A legal description of a property is recognized by law, and utilizes a government rectangular survey, a plat map, or metes and bounds to adequately identify and describe a particular property.

Lender's Fees

Lender's fees are paid to the lender in order to cover the costs of processing, financing and closing a home loan application.

Liabilities

Liabilities are an individual's financial obligations or debts, including both long- and short-term debt, as well as possible losses as a result of legal claims.

Liability Insurance

This is a type of insurance that offers protection against claims that the neglect or actions of a property owner led to the bodily harm or property damage of another party. Also see Homeowner's Insurance.

LIBOR Index

The LIBOR Index is used to calculate interest rate changes for some Adjustable Rate Mortgages (ARMs). It reflects the average rate for six-month deposits in the London market, calculated according to quotations of major financial institutions. LIBOR is short for London Interbank Offered Rate.

Lien

A lien is a legal claim against real estate that must be repaid when the property is sold, refinanced or used to borrow against home equity.

Lifetime Rate Cap

Lifetime Rate Caps are protective features of Adjustable Rate Mortgages, and place a limit on the percentage by which the interest rate can increase or decrease during the life of the loan. See Cap.

Line/Loan Amount

This refers to the maximum amount that a homeowner can borrow using a home equity line of credit or fixed rate second mortgage loan.

Line Of Credit

A line of credit is a lender's agreement to extend credit up to a specific amount for a specific time, without the borrower having to submit another application to access the funds. The most common example is a credit card. Also see Home Equity Line of Credit.

Liquid Asset

A liquid asset is anything owned that is either cash, or easily converted into cash.

Loan Amount

This is an amount of money that has been borrowed (also known as a principal loan amount), and usually gets paid back with interest over a certain period of time.

Loan Commitment

An agreement by a creditor to lend money according to particular conditions. See Commitment Letter.

Loan Default

A loan default is a failure to make loan payments when due. It could also refer to a failure to comply with other conditions of a mortgage agreement.

Loan Origination

Loan origination describes the process of a lender processing, underwriting and closing a home loan, including legally recording a mortgage against the borrower's property.

Loan-To-Value (LTV) Ratio

The LTV ratio is a percentage that represents the total amount borrowed on a mortgage loan compared to the appraised value of the home. For example, if a borrower has a $40,000 first mortgage on a home with an appraised value of $50,000, the LTV is 80% ($40,000/$50,000 = 80%).

Lock-in

A formal document stating the lender's agreement to guarantee a loan program's interest rate and points, provided the mortgage closes within a certain time.

Lock-in Period

The lock-in period is the period of time a lender has guaranteed a specific home loan interest rate to a borrower.