Glossary of Financial Terms
Glossary of Financial Terms
We’ve put together a list of some of the most commonly used financial terms so you can have a quick reference when you need to look something up.
| A | |
| Annual Percentage Rate (APR) | The cost of carrying a balance on a loan expressed as an annual percentage. To calculate the amount owed in interest each month, divide the APR by twelve. For example, if the APR is 18% the monthly rate is 1.5%. |
| Annual Percentage Yield (APY) | This calculation displays the effective annual rate of return, taking into account the effect of compounding interest. |
| Appraisal | A professional opinion of the market value of a property. |
| Appraisal Fee | The charge for estimating the value of property offered as security. |
| Authorized User | A person who has been given permission to make changes to a credit account. This status must be given by the primary account user. An authorized user is not legally responsible for repaying the account. |
| Automated Clearing House (ACH) | A secure payment transfer system that connects all U.S. financial institutions. The ACH network acts as the central clearing facility for all Electronic Fund Transfer (EFT) transactions that occur nationwide, representing a crucial link in the national banking system. |
| Automated Teller Machines (ATMs) | The terminals for user initiated banking transactions. |
| Automatic Payment | An arrangement that authorizes payments to be deducted automatically from a bank or credit union account to pay bills (such as insurance payments, rent, mortgage or loan payments). Payments are usually scheduled to be made on a certain day of the month. |
| Automatic Transfer | An arrangement that moves funds from one account to another automatically on a pre-arranged schedule: for example, every payday or once a month. |
| Available Balance | The portion of an account balance available for immediate withdrawals on which the financial institution has placed no restrictions. |
| B | |
| Balance Transfer | The process of transferring a balance from one credit card to another card. Usually this is done when one card has a better interest rate than the other. |
| Balance Transfer Fee | The fee charged by the credit card issuer to transfer a balance to a card. This is usually the same charge that applies to a cash advance. |
| Balloon Mortgage | A short-term fixed-rate loan which involves smaller payments for a certain period of time and one large payment for the entire balance due at the end of the loan term. |
| Balloon Payment | The final payment that is made at the maturity date of a balloon mortgage and pays the loan in full. |
| Bankruptcy | Legal declaration of the inability to repay debts. Federal Bankruptcy Law allows this person’s property to be administered to satisfy creditors. |
| Beneficiary | A person named to receive a benefit in a will, life insurance policy, retirement plan or other financial arrangement upon death. |
| C | |
| Cardholder Agreement | The written statement that defines and explains all legal terms for a credit card agreement. It includes payment terms, billing dispute procedures, communication guidelines, fees, etc. Debit cards may also have a cardholder agreement. |
| Cash Advance Fee | A fee assessed when a cardholder uses a credit card to obtain cash. These fees are often charged as a percentage of the cash obtained. |
| Cashier Check /Certified Check | A cashier check or certified check is drawn against the issuing financial institution and is typically purchased by the customer or member for a fee. A cashier check is usually made available for withdrawal without a hold on the day after the date of deposit. |
| Certificate of Deposit (CD)/Share Certificate | An investment instrument, issued by a financial institution, that is evidence of a type of saving deposit. The document includes the institution’s promise to return the deposit, plus earnings at a specified interest rate for a specified period of time. |
| Check | A written document instructing a financial institution to pay money from the writer’s account to the payee on the check. |
| Closing | A meeting of the parties involved in a real estate transaction to finalize the process. In the case of a purchase, a closing usually involves the seller, the buyer, the real estate broker and the lender. In the case of a refinance, the closing involves the borrower and the lender. Sometimes referred to as the settlement or the close of escrow. |
| Closing Costs | The total of all the items that must be paid at closing related to your new mortgage. Closing costs are made up of individual closing cost items such as origination fees, escrow fees, underwriting fees and processing fees. Also called “settlement cost”. |
| Co-applicant/Co-borrower | An individual who signs a note to guarantee a loan made to another party and is jointly liable with that party for repayment. |
| Co-signer | Signer other than the borrower, who assumes responsibility for the loan if the borrower fails to repay it. |
| Collateral | Anything that a lender accepts as a security for a borrower’s loan. If the borrower fails to repay the loan, the lender is allowed to repossess the collateral and sell it to satisfy the loan. |
| Conventional Mortgage | A mortgage that is not insured or guaranteed by the federal government. |
| Credit Agency/Bureau | Organization that compiles credit and personal information to be provided to creditors. This information may include payment history, credit accounts and balances and employment information. |
| Credit History | A record of how a person has borrowed and repaid debts. |
| Credit Limit | The maximum amount of money a borrower can access in a credit account. |
| Credit Report | A report of an individual’s credit history (current and past debt repayment patterns) prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness. |
| D | |
| Debit Card | A plastic card that functions and resembles a credit card but directly debits a transaction from a selected checking account. It may also be used for withdrawals or other transactions associated with ATMs. |
| Debt Consolidation | Using the proceeds of a new loan to pay off one or more existing loans. Usually done to provide the borrower more favorable terms than the existing debt. |
| Deductible | Under an insurance policy, the amount of loss or expense that one must pay before the insurance company begins paying. |
| Default | Failure to make payments on a timely basis or to comply with other conditions of a loan. Defaults are reported to national reporting agencies, which may affect future creditworthiness. |
| Deferment | Period during which a borrower who meets certain criteria may suspend loan payments. On some student loans the federal government pays the interest. In other cases, interest accrues and the borrower is responsible to pay it after the deferment period ends. |
| Direct Deposit | Electronic deposit of wages or benefits, such as pension or social security, into a personal bank account or credit union account; deposits are handled through ACH system of the Federal Reserve Bank. |
| Discharge | Release of a borrower from the obligation to repay his or her loans through the completion of a bankruptcy filing. |
| E | |
| E-Statement | Electronic version of a monthly account statement available to account holders through a secured website. |
| Earnest Money | A deposit made by the potential home buyer to show that she/he is serious about purchasing the home. Earnest money is normally submitted with the purchase agreement. |
| Endorse/Endorsement | To sign, as the payee, the back of a check before cashing or depositing the check. |
| Equal Credit Opportunity Act | Legislation passed in 1974 that requires all lenders to make credit equally available, without discrimination based on any prohibited factors. |
| Equity | Difference between the appraised value and the outstanding principal balance. |
| Escrow | The holding of documents and money (taxes, insurance, etc.) by a neutral third party prior to closing or during the life of a mortgage loan. |
| F | |
| Federal Deposit Insurance Corporation (FDIC) | An agency of the federal government that insures accounts for banks. |
| Finance Charge | The total cost of credit over the life of a loan. |
| Fixed Interest Rate Loan | A loan in which the rate of interest does not change over the life of the loan. |
| Forbearance | Postponement of payments or reduction in monthly payments for a limited, specified period of time during which a borrower is unable to make payments. |
| Foreclosure | Usually refers to the repossession of real estate. The legal process required to gain possession of a house when a specified number of mortgage payments have been missed and the client has not sold the house on his own. |
| G | |
| Good Faith Estimate | A breakdown of cost to originate a mortgage loan. Lenders are required to provide a good faith estimate to borrowers within three (3) business days of receiving the borrower’s application. |
| Grace Period | The length of time between the use of credit to make a purchase and the start of interest on the amount charged. Grace periods are usually available on credit card accounts. |
| Grant Deed | The written instrument that conveys a property from the seller to the buyer. The deed is recorded with the County recorder so that the transfer of ownership is part of the public record. |
| Guarantor | A person who is financially responsible for the repayment of a credit account but has no use privileges. Also known as a co-signer. |
| Guaranty | A pledge to make good a note or security in case of default by the borrower. Although the original debtor is responsible for the debt, a guarantor becomes liable in the event of a default. |
| H | |
| Home Equity Line of Credit | A credit line providing the ability to borrow funds at the time and in the amount chosen by the customer, up to a maximum qualified credit limit. Repayment is secured by the equity in the customer’s home. Interest is usually tax-deductible. |
| Home Equity Loan | A fixed or adjustable rate loan secured by the equity in the borrower’s home. Interest paid is usually tax-deductible. |
| I | |
| Individual Retirement Account (IRA) | A retirement investing tool for employed individuals that allows an annual contribution of 100% of earned income up to a specified maximum amount. The contribution may be deductible from income taxes, depending on the individual’s income and coverage by an employer-sponsored retirement plan. IRA accounts can be Traditional or Roth IRA accounts. Each type has different tax, withdrawal and contribution rules. |
| Interest | Fee charged for borrowing money. Interest is calculated as a percentage of the principal loan amount. The rate may remain fixed throughout the life of the loan, or it may be variable and change at specified intervals. |
| Interest-Only Payment | Payment that covers the interest owed but not the principal balance. |
| Interest Rate | The monthly effective rate paid (or received if you are a creditor) on borrowed money. Expressed as a percentage of the sum borrowed or invested. |
| J | |
| Joint Account | A credit or deposit account held by two or more people so that all can use the account and all assume legal responsibility to repay. |
| L | |
| Late Fee | A charge assessed by a creditor for payments received beyond the due date and any allowed grace period. |
| Late Payment | A payment made later than agreed upon in a credit contract and on which additional charges may be imposed. |
| Lien | A legal claim against property that must be paid off when the property is sold. |
| Line of Credit | An agreement by a financial institution to extend credit up to a certain amount for a certain time to a specified borrower. |
| Loan Servicing | The collection of mortgage payments from borrower and other related responsibilities of a loan servicer. |
| Loan-to-Value (LTV) | The relationship between the principal balance of the mortgage and the property’s appraised value (or sales price if it is lower). |
| Lock-in | A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in usually specifies the loan terms and closing date. |
| M | |
| Maintenance Fee | A fee that is charged to the account holder under the terms of the account. Also called a service fee. A maintenance fee may be charged either for having the account or if the account balance drops below the required minimum. |
| Maturity Date | The date on which the principal balance of a financial instrument becomes due and payable. |
| Minimum Balance | The average balance in the account for a designated period of time. If the account balance falls below the minimum balance a fee may be charged. |
| Minimum Deposit | The minimum initial deposit required to open an account. |
| Minimum Payment | The smallest payment a consumer can make in a billing cycle to keep the account from going into default. |
| Money Order Fee | Similar to a check. It is used to pay bills or make purchases in cases where cash is not accepted. |
| Mortgage | A legal document that pledges a property to the lender as security for payment of a debt (loan); the pledge is canceled when the debt is paid in full. |
| N | |
| NSF | Non-sufficient funds. This term is used to describe the reason a check or automatic debit was returned when there is not enough funds available in an account to pay the item. |
| NSF Fee | A non-sufficient fund fee is charged when a transaction drawn on an account with insufficient funds is not honored by the paying institution. The NSF fee is a processing fee to your account to cover the cost to return the check. |
| O | |
| Online Banking | Convenient banking service using the Internet and a computer to access account balances, transaction history, transfer funds, pay bills and more. |
| Online Bill Payment | An optional service of Online Banking, which enables a user to create specific payees and submit payment-processing instructions for either electronic or paper processing of most routine bills. |
| Origination Fee | Fee charged by a financial institution to cover the cost of administering a loan from application to closing. Origination fees are usually only charged on mortgage loans. |
| Overdraft Fee | A fee that is charged an account holder for a check, debit card or other transaction that is paid or honored by the paying institution when the available balance in the account is not sufficient to cover the amount of the transaction. |
| P | |
| Payee | Any individual, business or party at the receiving end of a payment. |
| Personal Identification Number (PIN) | A code that provides security for consumers at an ATM. Only the cardholder knows the PIN and the PIN must be entered to complete a transaction. |
| Point of Sale (POS) | The store or other location where a transaction takes place. |
| Prequalification | The process of determining how much money a prospective home buyer will be eligible to borrow before a formal loan application is submitted. |
| Prime Rate | The interest rate financial institutions charge their most creditworthy commercial customers. Financial institutions use the prime as a base to set rates for credit cards, home-equity loans, and other loans, including loans to small and medium-size businesses. |
| Private Mortgage Insurance (PMI) | Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults on a mortgage loan. Mortgage insurance is typically required for loans with loan-to-value (LTV) percentages greater than 80 percent. |
| Promissory Note | Contract between a borrower and a lender that includes terms and conditions under which the borrower promises to repay the loan. |
| Q | |
| Qualifying Ratios | Guidelines applied by lenders to determine how large a loan to grant a home buyer. Ratios are based upon income and obligations of the borrower(s). |
| R | |
| Refinancing | The process of paying off one loan with proceeds from a new loan using the same property as security. |
| Roth IRA | A tax-deferred retirement account. Slightly different from a regular IRA because contributions to a Roth IRA are not tax-deductible. However, there is no tax on withdrawals as long as the taxpayer is age 59 and the account has been open for at least five years. |
| S | |
| Savings | The total accumulated amount of income that is not spent on consumption. |
| Secured Loan | A secured loan is a borrower’s obligation that includes the pledging of some form of collateral to protect the lender in case of default. |
| Service Fee/Charge | A fee that is charged to the account holder under the terms of the account. Also called a maintenance fee. A service fee may be charged either for having the account or if the account balance drops below the required minimum. |
| Stop Payment | A request made to a bank or credit union to not pay a specific check. If requested soon enough, the check will not be debited from the payer’s account. Normally there is a charge for this service. |
| Stop Payment Fee | A fee charged for a stop payment order. The account holder requests that the paying institution not pay a particular check previously written by the account holder. |
| T | |
| Term | The loan term is the number of months that you will make monthly payments. |
| Transaction Date | The date that a purchase was made or a cash advance was taken. |
| Trust | A legal entity created to manage property for the benefit of a specific person or persons. A trust is funded when the owner (the grantor) transfers ownership of property to another (the trustee) for the immediate or eventual benefit of a third person (the beneficiary). |
| Truth-in-Lending | A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges. |
| U | |
| Underwriting | The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s credit worthiness and the value of any collateral offered for the loan. |
| Unsecured Debt | A loan that is not backed by collateral. Also knows as a signature or note loan. |
| V | |
| Variable Rate Loan | A loan in which the rate of interest is tied to a certain index and changes periodically based on changed in the index. |
| W | |
| Wire Transfer | A transaction that electronically transfers money from one financial institution to another. |
| Wire Transfer Fee | A fee charged by some financial institutions to cover the cost of performing a wire transfer. |
| Withdrawal | An amount of money taken out of an account. |
| Y | |
| Yield | The percentage rate of return paid on a stock in the form of dividends or the rate of interest paid on a bond or note. |
| Yield to Maturity | The percentage rate of return paid on a bond, note or other fixed income security if one buys and holds it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to maturity and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at the same rate. |
If you have any questions about our Financial Education Resources, or you'd prefer to speak to someone in person about your finances, give us a call at 321-455-9400 (inside Brevard) or 800-662-5257 (outside Brevard) or come visit us at any one of our convenient branch offices.