Glossary

Adjustable Rate Mortgage (ARM) - A mortgage on which the rate of interest, and therefore the size of the monthly payment, is adjusted up and down in line with movements in interest rates.
Allowable Contributions - A maximum dollar amount a participant can contribute to an IRA during a taxable year. Contributions are deemed allowable if they meet specific rules concerning their composition and timing. The rules governing allowable contributions differ among the various types of IRAs.
Allowable Distributions - The distributions from IRAs ranges between ages 59-1/2 and 70-1/2, in any amount; or, after age 70-1/2 either (a) in full or according to payout schedules or (b) as a consequence of the participant's death or disability.
Amortization - The repayment of a debt in a specified number of equal periodic installments which include a portion of principal and accrued interest. Most home mortgage loans are fully amortized.
Annual Percentage Rate (APR) - A measure of the cost of credit expressed as a yearly rate that relates the amount and timing of value received by the consumer to the amount and timing of payments made. The APR includes the quoted interest rate plus certain service charges and other finance charges associated with the loans.
Annual Percentage Yield (APY) - The interest earned on a deposit for 365-day period. The APY is determined by applying the interest rate, factoring the frequency with which interest is compounded and calculating interest for a 365-day period.
Appraisal - An estimate of the worth of a piece of property, especially an estimate of the market value of a piece of real estate by a competent party having knowledge of real estate prices and markets.
Appreciation - The increase in value of a material item, especially an increase in market value of real estate.
APR - See Annual Percentage Rate.
APY - See Annual Percentage Yield
Balloon Mortgage - A mortgage with periodic installments of principal and interest or interest only; installment payments do not fully amortize the loan. The unpaid principal is due in a lump sum at the end of the term.
Balloon Payment - The unpaid principal amount of a mortgage or other long term loan due at a certain date in the future. A balloon payment usually is paid in a lump sum.
Banking Act of 1933 - The first major banks legislation of the Roosevelt administration. It created the Federal Deposit Insurance Corporation (FDIC) and provided for insurance of deposits of member banks; regulated the operation of the banks; limited branch banking; and effected other important changes in banking law. Many of its provisions subsequently were amended. Also known as the Glass-Steagall Act.
Basis Points - An investment term that refers to hundredths of one percent yield. Thus, "50 basis points" higher yield is equal to 1/2 percent higher yield for a particular investment.
Beneficiary - The person designated to receive the benefits accruing from the funds in a trust account or an insurance policy.
Canceled Check - A check that has been paid by the financial institution on which it was drawn. It is stamped "paid" on the day it is paid and charged to the drawer's account.
Certificate of Deposit (CD) - A savings account evidenced by a certificate which, if held for a fixed or minimum term, will receive a fixed or variable rate of return greater than a regular savings account.
Certified Check - A check that guarantees that: (1) the signature of the drawer is genuine and (2) sufficient funds are on deposit for its payment. The amount certified is set aside by the financial institution for the express purpose of paying the check, and the financial institution is obligated to pay the check when payment is requested.
Check - A written unconditional order to a drawee institution to pay out a definite sum of money from the maker's account.
Check Truncation - The process of microfilming customers' paid checks or drafts in which the microfilm is the official record of the transaction. The official record is retained by the customer's institution and canceled checks and drafts are not returned to account holders.
Closing Costs - The expenses that are paid by a buyer and seller for the purchase, sale or financing of a property. These include loan fees, title fees, appraisal fees and others.
Club Account - A savings account characterized by small, fixed, weekly or biweekly deposits, a short term and a definite goal for saving. Examples are Christmas club accounts and vacation club accounts.
Commitment - A written promise to make a loan for a specified amount and on specified terms.
Commitment Letter - A letter from the lender to the borrower stating that the loan application has been approved for a specific amount, term and rate and listing the conditions under which the loan funds will be disbursed.
Commitment Period - Period of time for which a loan commitment will be valid.
Compound Interest - The interest that accrues when earnings for a specified period are added to principal, so that interest for the following period is computed on the principal plus accumulated interest.
Construction Loan - A loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Consumer Loan - A secured or unsecured loan to a natural person for personal, family or household purposes; consumer credit can be open- or closed-end credit.
Co-signer - An individual or entity that signs a legal document on an equal basis with the signer. On a promissory note, all co-signers are individually and jointly liable for repayment of the full debt.
Credit Bureau - An agency that collects and distributes credit-history information on individuals and businesses.
Direct Deposit - A system under which a customer gives permission for funds to automatically be deposited into his or her account on predetermined dates.
Education Loan - An advance of funds made to a student for the financing of a college or vocational education. Various programs are funded through federal or state agencies, or private organizations.
Endorsement - A signature written by hand or stamped on the back of a negotiable instrument whereby the ownership thereof is assigned or transferred to another.
Equity Loan - A loan, which uses the borrower's equity in real property as security. It may be made for a variety of purposes. Also known as a second or junior mortgage loan.
Escrow Account - Account held by a lender for payment of taxes, insurance and other periodic debts against real property. The borrower pays a portion of the total yearly assessment with each payment.
Federal Deposit Insurance Corporation (FDIC) - An institution of the federal government that insures savings accounts in member commercial banks, bank holding companies and mutual savings banks.
Finance Charges - The sum of all charges payable directly or indirectly by the borrower and imposed directly by the creditor as an incident to or as a condition of the extension of credit. Finance charges must be included on truth-in-lending disclosures and described as the total dollar amount the consumer pays for the use of credit.
Fixed Rate - A loan on which the interest rate remains the same for the full term of the loan.
Fixed-Rate Mortgage - The term commonly used to describe a mortgage loan with a constant interest rate and payment throughout the life of the loan. The periodic payments of principal and interest made by the borrower during the term of the loan result in the mortgage loan being paid in full at maturity.
Good Faith Estimate - A disclosure required under the Real Estate Settlement Procedures Act (RESPA) that must be given to all real estate secured loan applicants within three days of the application. The disclosure is an estimate of all settlement charges likely to be incurred at closing.
Income to Debt Ratio - The relationship of income to debts, calculated by dividing total debts by total income.
Individual Retirement Account (IRA) - A tax-deferred, trusteed savings account into which certain eligible individuals contribute funds for retirement up to annual contribution limits. Approved vehicles for IRAs include savings accounts and certificates at financial institutions, insurance annuities, mutual fund offerings and certain self-managed securities accounts at stock brokerage firms.
Interest - A financial institution's periodic payments to savers for the use of their funds; also called dividends or earnings in reference to savings accounts. The term interest also describes the charge to a borrower by a financial institution for the use of its loan funds.
IRA Transfer - The transfer of IRA funds from one trustee/custodian to another trustee/custodian without any payout of funds to the participant. Because IRA transfers are direct transactions between trustees/custodians, the IRA law views such transfers as separate and distinct from either distributions or rollovers. See rollover IRA.
Joint Tenancy - A type of ownership by two or more parties who share equal rights in and control of property, with the survivor or survivors continuing to hold all such rights on the death of one or more of the tenants.
Lien - A security interest in real estate or personal property.
Line of Credit - A pre-established borrowing limit set forth by a lending institution and assigned to an individual or business based on creditworthiness. A line of credit is used with open-end loans that allow borrowers to obtain advances or make purchases against an account, eliminating the need to re-apply for credit prior to individual purchases.
Loan - A sum advanced to individuals, businesses, government units or others, to be repaid with or without interest as set forth in the accompanying bond, note or other evidence or indebtedness.
Loan to Value Ratio - The relationship of a loan amount to the value of the collateral, calculated by dividing the loan amount by the value of the collateral.
Loan Closing - The process that brings a loan into legal existence, including the signing of all loan documents, their delivery to the appropriate parties and the disbursing of at least some of the loan proceeds.
Lump-Sum Distribution - The withdrawal of an individual's pension benefits or retirement savings in the form of a single payment or lump sum. All, or any part, of a lump sum distribution can be used to establish a rollover IRA.
Money Market Deposit Account - A savings account offered by financial institutions that is designed to be directly equivalent to and competitive with money market mutual funds. Although a minimum initial deposit is required, the account has no interest rate ceiling on balances above the minimum initial deposit. There is no regulated minimum term.
Money Market Fund - A type of investment company in which the funds of many individuals who have similar investment goals are pooled into one or more types of equity and debt securities. The yields on these investments fluctuate due to varying interest rates and the continuously changing investment portfolios.
Mortgage - A legal document by which real property is pledged as security for the repayment of a loan; the pledge ends when the debt is discharged.
National Flood Insurance Program - A program that provides flood insurance at affordable rates through a federal subsidy. In return for this subsidy, communities in designated flood hazard areas must administer local measures that aid in flood prevention.
On-Us Checks - The term used by a financial institution to refer to checks drawn on itself. A check is considered an on-us check when it is cashed over the counter by the payer bank.
Outstanding Check - A check that has not yet been presented for payment to the financial institution on which it was drawn.
Overdraft - A draft or check written for an amount that exceeds the balance in a customer's account.
Overdraft Protection - A line of credit on which customers can write checks for an amount over and above the balance in their checking accounts.
Owner Occupied - Property physically occupied by the owner as their residence.
Personal Identification Number (PIN) - A secret number or code used by an account holder to authorize a transaction or obtain information regarding the person's account. The PIN may be used in conjunction with a plastic card to ensure that the person activating an automatic device with a plastic card is the individual to whom the card was issued.
PIN - See Personal Identification Number.
Private Mortgage Insurance (P.M.l.) - Allows borrower to purchase homes with small down payments. PMI insures a portion of the first mortgage, thus enabling a lender to make a conventional loan of a higher percentage of the property value. The cost of this insurance is part of the monthly payment from the borrower.
Point - One percent (.01). The term is used to describe the fee charged by a lender.
Prepayment Penalty - A monetary penalty charged when a loan is paid off prior to the expiration of the original loan term.
Regulation Z - The title of the Federal Reserve Board's regulations implementing the Consumer Credit Protection Act for all lenders. Also called Truth-in-Lending. This disclosure must be provided within three days of the application. It provides detailed information regarding the Annual Percentage Rate (APR) and other aspects.
Rollover IRA - A type of Individual Retirement Account (IRA) that allows employees who receive a lump-sum distribution upon leaving an employer, or upon termination of an employer's qualified plan, to deposit all or any portion of the funds in an IRA.
Safe Deposit Box - A space in a vault that is rented to an individual for the safekeeping of valuables.
Savings Account - The funds placed in an account that can be withdrawn only by the owner(s) or a duly authorized agent, or on the owner's nontransferable order; sometimes called a savings deposit or share account.
Savings Account Loan - A loan secured by the pledging of savings funds on deposit with the institution.
Simple Interest - Interest computed on the outstanding principal only.
Tenancy in Common - A form of ownership in which two or more parties own property, but in which each owns a separate interest; when one owner dies, that owner's share passes to his or her heirs, not to the remaining owner(s). In tenancy in common account ownership, signatures of all owners are necessary for withdrawal.
Tenancy by the Entirety - A form of ownership by husband and wife, recognized in certain states, in which the rights of the deceased spouse automatically pass to the survivor.
Title Insurance - Insurance against loss resulting from defects of title to real estate.
Transit Number - An identifying code number devised by the American Bankers Association and assigned to each financial institution in the check-clearing system. Each number has two parts, separated by a hyphen. The first part is a code identifying the geographic location of the paying institution; the second part is a code identifying the institution itself.
Uniform Gift to Minors Act - An act that sets forth provisions for giving a minor an intangible gift (e.g., bank accounts, stocks or bonds), that results in income shifting with an adult serving as custodian. The custodian (e.g., parent) has direct control over the gift and can sell and reinvest proceeds from the gift for the minor with the minor recognizing any gain and/or annual income that results. The minor's income from the gift cannot be combined with the custodian's property (e.g., parents using part of the child's income to purchase a car for the parents).