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GLOSSARY OF FINANCIAL AND MONEY TERMS

Navigating the world of finances and loans can be tricky, but it's a lot easier when you know the terms.

Select the first letter of the word you're looking for.

ABCDEFGHIJKLMNOPQRSTUVWXYZ 

A


Amortization
Amortization means that the loan is paid off gradually through monthly payments on the principal (the amount borrowed).


Amortization Schedule
A loan's amortization schedule is the timetable for payments. It shows the amount of each payment applied to the principal (the amount borrowed) and the interest, and also shows the remaining balance on the loan after each payment is made.


Annual Percentage Rate (APR)
The APR is the percent of the loan that is paid in interest each year, including any additional costs and fees. APR is also called actual percentage rate.


Application
The statement of personal and financial information you provide when trying to secure a loan.


Application Fee
A fee charged by the lender to the borrower for applying for a loan.


Appraisal
A written evaluation of the recent sales of similar homes in a given market (current market value of a specific property).


Appraised Value
The estimated amount of a property's fair market value, reported in an appraisal, and based on the appraiser's analysis of the property or determined by a computer calculation.


Appraiser
A person qualified by education, training, and experience to estimate the value of real property and personal property.


Approval
The granting of a loan based on specific terms.

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B

Balance Sheet
A statement that shows assets, liabilities, and net worth as of a specific date.


Balloon Loan/Mortgage
A loan with a regular payment schedule that is not fully paid off through regular payments. The remaining amount owed on the loan is due in one lump sum at the end of the term of the loan.


Beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.


Buy Down
Money advanced by a seller, builder, or other party to a buyer in order to reduce the buyer's monthly payments for a home mortgage either for the entire term of the loan or for a designed period at the beginning of the term of the loan.

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C

Cap
The limit on how much the interest rate can increase or decrease on an ARM.


Cash-Out Refinance
A refinance transaction in which the amount of money received from a new loan is more than the total needed to repay the existing mortgage, closing costs, points, and the amount required for any outstanding subordinate mortgage liens.


Ceiling
The maximum allowable interest rate on an adjustable rate mortgage.


Closing
The event at which a sale is finalized and where the buyer signs the mortgage; also called settlement.


Closing Costs
The costs associated with processing a loan, such as application fees, points, title search, insurance, and credit report.


Community Property
A form of ownership in some Western and Southwestern states where property acquired during a marriage is presumed to be owned jointly unless acquired separately by either spouse.


Condominium
A condominium or condo is a form of homeownership in which the owner gets title to a housing unit and interest in the building's common areas.

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D

Debt Ratio
The amount of minimum debt or payments one must pay in relation to income earned. This ratio is calculated by dividing the amount of monthly debt payments by monthly income.


Deed
The document that proves ownership of a specific property and lists the owner(s) of the property.


Deed of Trust
Like a mortgage, whereby real property is given as security for a debt; however, there are three parties involved: the borrower, the trustee, and the lender (or beneficiary). The borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, the borrower defaults in the payment of the debt, the trustee may sell the property at a public sale.


Default
Failure to make payments on a timely basis or to comply with other loan requirements.


Disposable Income
All income remaining after all necessary expenses are paid, such as mortgage, car payment, insurance, etc.


Due-On-Sale Provision
A provision in a mortgage by which the lender can demand repayment of a loan in full if the borrower sells the property that serves as security for the loan.

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E

Encroachment
A building, or part of a building or an obstruction, that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.


Encumbrance
A legal right or interest in land that affects a good or clear title, and diminishes the land's value. An encumbrance may be one of the following: zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. It does not legally prevent transfer of the property to another. A title search is usually done to reveal the existence of such encumbrances.


Equal Credit Opportunity Act (ECOA)
The ECOA is a federal law that requires lenders to lend without discrimination based on race, color, religion, national origin, sex, marital status or income from public assistance programs.


Equity Loan
A loan based on a borrower's equity in his or her home. You can calculate the equity in your home by taking the value of your home and subtracting out the amount you still owe on the mortgage.


Escrow Account
An account set up by a lender to which the borrower makes monthly payments for such obligations as real estate taxes, homeowners insurance, and private mortgage insurance. The lender disburses these funds on behalf of the borrower as the bills become due.

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F

Fair Credit Reporting Act
Fair Credit Reporting Act is a federal law designed to protect consumers from inaccurate credit information, and requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information.


Finance Charge
Total charges one must pay in order to get a loan.


Fixed-Rate Mortgage
A home loan with an interest rate that remains fixed for the entire loan term.


Flood Insurance
Property coverage to protect against losses caused by floods.  This is required for real property located in "Designated Flood Hazard Areas" as designated by governmental agencies.


Foreclosure Sale
A legal course of action in which property mortgaged as security for a loan is sold at public auction to pay the defaulting borrower's debt.

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G

Good Faith Estimate
An estimate detailing the closing/settlement costs.


Grace Period
The grace period is specified as part of the terms of the loan in the note and is the period of time during which a loan payment may be made after its due date without incurring a late penalty.


Gross Monthly Income
Total monthly income earned before deductions (taxes).

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H

Hazard Insurance
Insurance that protects against damage caused to property by windstorm, fire, or other common hazards.


Home Equity Loan
A loan based on the equity the borrower has in his or her home.


HUD-1 Statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include commissions, loan fees, points and initial escrows. Also referred to as a "closing statement" or "settlement sheet."

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I

Insurance Binder
Documentation that states that insurance is temporarily in effect. A permanent policy must be obtained before the expiration date because the coverage will expire by a specified date.


Interest
The cost paid for use of money borrowed.


Interest Rate
The percentage of an amount of money which is paid for its use for a specified time.


Interest Rate Cap
The limit on how much interest rates may increase or decrease per adjustment period as a provision of an ARM.


Interest Rate Ceiling
The maximum interest rate, as specified in the mortgage note, for an ARM.


Interest Rate Floor
The minimum interest rate for an ARM, as specified in the mortgage note.

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J

Judgment
A decision by a court of law. The court may place a lien in judgments that require the repayment of a debt. Liens may be placed against the debtor's real property as collateral for the judgment's creditor.


Judgment Lien
A decree from a court to place a lien on the property of a debtor.


Jumbo Loans
The term used to describe a loan that does not conform to Fannie Mae or Freddie Mac lending limits.

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K

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L

Late Charge
A penalty fee a borrower must pay when a payment is made after stated number of days (usually 15) after the due date.


Lifetime Cap
The total increase in interest rates over the life of the loan as a provision of an ARM.


Lifetime Payment Cap
A limit on the amount that payments can increase over the life of the mortgage, for an ARM.


Loan-to-Value
The total amount of the loans (mortgages) divided by the market value or the appraised value.

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M

Margin
A margin or "spread" is an amount the lender adds to the price index.


Market Value
The price for which a property can be realistically sold based upon comparable selling prices of other properties in the same area.


Merged Credit Report
A credit report that contains information from three credit reporting agencies that is compared for duplicate entries, which are then combined to create a summary of credit.


Mortgage
A loan that is secured by a piece of real estate. The mortgagor (the buyer) promises to keep the home insured, repay principal and interest, pay all taxes, and to keep the property in good condition.


Mortgage Broker
A third party who will find someone else to lend money to a customer. A mortgage broker cannot approve a loan for a customer.

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N

Negative Amortization
(Also called "Deferred Interest"). A slow increase in mortgage debt that occurs when the monthly payment is not big enough to cover the interest due. The amount of the shortfall is added to the remaining balance to create negative amortization


Non-Conventional or Non-Conforming Mortgage
A mortgage loan that doesn't conform to agency-established limits such as loan-to-value ratio, term, and other characteristics. Regulatory limits often have to do with Fannie Mae, Freddie Mac, and other government-established guidelines.


Note
A legal document that obligates a borrower to repay a mortgage loan at a specified interest rate during a specified period of time or on demand.


Note Rate
A mortgage note's stated interest rate.

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O

OTS
The OTS is The Office of Thrift Supervision which charters federal thrifts, serves as the primary federal examiner and regulator of federal and state-chartered savings associations, and administers laws governing savings and loan holding companies.

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P

Planned Unit Development (PUD)
A subdivision or project that has common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.


Power of Attorney
A legal document that authorizes complete authority or limited authority to another person for a certain act or period of time to act on one's behalf.


Private Mortgage Insurance (PMI)
Private Mortgage Insurance insures the lender against loss if the borrower defaults on the mortgage loan. PMI is usually required when the borrower's down payment or equity is less than 20% of the loan value.


Promissory Note
A contract/agreement between the lender and the borrower for repayment of a loan (also called a "note").

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Q

Qualifying Ratios
Guidelines lenders apply to determine how large a loan to grant a homebuyer.

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R

Real Estate Settlement Procedures Act (RESPA)
RESPA is a consumer protection law that requires lenders to give borrowers advance notice of closing costs.


Refinance
Retiring an existing debt from the proceeds of a new loan using the same collateral as security.


Rescission Period
A three-business-day waiting period from the time the final loan papers are signed to disbursement of the actual loan proceeds. A customer can cancel the loan without any penalty during this period, according to federal law.


Revolving Account
An account with no set term of when money borrowed has to be paid back. The balance owed can change, as can the payment being made. Most credit card accounts are revolving.


Right of Rescission
A customer's right to cancel a loan transaction in which a security interest is or will be, a consumer's principal dwelling.

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S

Servicer
A party who has entered into an agreement with the note holder to service a loan.


Settlement
The process of closing a mortgage loan.


Settlement Costs
See Closing Costs.


Survey
A map or plot made by a licensed surveyor showing the results of measuring the land with its elevations, boundaries, improvements, and its relationship to surrounding tracts of land. Often a survey is required by the lender to assure that a building is actually sited on the land according to its legal description.

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T

Tax Lien
A claim for the amount of unpaid taxes against real estate.


Title
A form of a certificate or deed that is evidence of a person's legal right to ownership of property.


Title Insurance
Insurance that protects lenders or homeowners against loss of their interest in property due to legal defects in title. It may be issued as a mortgagor's title policy. The insurance benefits are paid only to the named insured in the title policy. Thus, it is important that an owner purchase an owner's title policy if he desires the protection of title insurance.


Townhouse
A row house on a small lot that has exterior limits common to other similar units.  Title to the unit and its lot is vested in the individual owner with a fractional interest in common areas, if any.


Truth in Lending Act
A federal law that requires disclosure of credit terms using a standard format; intended to facilitate comparisons between the lending terms of financial institutions (see HUD-1 statement.)

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U

Underwriting
A process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves analyzing the borrower's creditworthiness and the quality of the property itself.

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V

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W

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X

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Y

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Z

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