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Educate Yourself.
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   Hotline (520)792-3087                       glossary of financial terms listed alphabetically - Page 1 of 6
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Term
Definition
Numerical, A, B, C (part 1)
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203(b) 
FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.
203(k) 
This FHA mortgage insurance program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.
Acceleration Clause 
Provision allowing the lender to ask for full payment at once, if loan installations are not paid when due.
Accrued Interest 
Interest that is due, on a bond for example, but that hasn’t yet been paid.
Actual Cash Value 
An amount equal to the replacement value of damaged property minus depreciation.
Adjustable Rate Mortgage (ARM) 
A mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly payment amount, however, is usually subject to a Cap.
Adjustment Period 
The time between interest rate adjustment dates for an ARM. They are usually the initial period between the time the ARM is originated and the first interest rate change date, and subsequent adjustment periods between each interest rate change after the first interest rate change.
Adverse action 
(1) refusal to grant credit in the amount or under the terms requested, or (2) termination of an account, or (3) refusal to increase the amount of an existing credit line when the applicant requested it in accordance with the creditor's procedures, or (4) an unfavorable change in terms that affects only some of the debtors.
Advice 
The credit union's written acknowledgment to its members of a debit or credit transaction affecting that member's account
Amenity 
A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like Location, Woods, Water) or man made (like a swimming pool or garden).
Amortization Schedule 
A table showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment is made.
Amortization 
A term used to describe the process of paying off a loan over a predetermined period of time at a specific interest rate. The amortization of a loan includes payment of interest and a portion of the outstanding principal balance during each payment cycle.
Amount Financed 
The amount of credit provided to or on behalf of the borrower, calculated under the Truth in Lending Act. This is the principal minus certain loan charges that the Truth in Lending Act defines as finance charges.
Annual Percentage Rate (APR) 
Calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.
Annual Report 
A formal financial statement issued yearly by a corporation which shows assets, liabilities, revenues, expenses and earnings.
Application Fee 
The fee that a mortgage lender charges to apply for a mortgage to cover processing costs.
Application 
The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Appraisal Fee 
Charge for estimating the value of collateral being offered as security.
Appraisal 
A document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Appraiser 
A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
Appreciation 
An increase in the market value of a home due to changing market conditions and/or home improvements.
Arbitration 
A process where disputes are settled by referring them to an impartial third party (arbitrator) chosen by the disputing parties who agree in advance to abide by the decision of the arbitrator. There is a hearing where both parties have an opportunity to be heard, after which the arbitrator issues the decision.
Asbestos 
A toxic material that was once used to make insulation and fireproofing material in houses. Because some forms of asbestos have been linked to certain lung diseases, it is no longer used in new homes. However, some older homes may still have asbestos in these materials.
Assessor 
A government official who is responsible for determining the value of a property for the purpose of taxation.
Asset 
Anything owned by an individual, a business, or a credit union which has commercial or exchange value.
Assumable Mortgage 
A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.
Assumption 
A homebuyer's agreement to take on the primary liability for paying an existing mortgage from a home seller.
Audit 
An official investigation to verify that all assets, liabilities, income and expenses of a financial institution are correctly stated. The audit of an institution's operation also serves to inhibit fraud and errors, and determines the accuracy of accounting and bookkeeping procedures.
Automated Teller Machine (ATM) 
Equipment used by a member to obtain financial services, generally activated by a plastic card, pushbuttons and a personal identification number for each user.
Automatic Clearing House (ACH) 
A computer based facility that settles payments and deposit transactions between member financial institutions.
Automatic Funds Transfer (AFT)
A procedure that allows the transfer of funds from one account to another. SECU has special forms that members can complete which authorize the credit union to have funds automatically transferred to the member's SECU accounts from another financial institution.
Average Daily Balance 
A method used to determine interest on a loan balance. Purchases and advances for the month are added to the outstanding balance, then credits are subtracted. The result is divided by the number of days in the month.
Bait and Switch
Schemes the lender may promise one type of loan or interest rate, but switch you to a different one. Sometimes a higher (and unaffordable) interest rate doesn't kick in until months after you have begun to pay on your loan.
Balloon Mortgage 
A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, a "balloon" or lump sum payment is due at the end of the term. Balloon mortgages frequently contain a provision to refinance when the balloon payment is due.
Balloon Payment 
Any payment that is more than twice the amount of any other regularly scheduled equal payment.
Bankrupt 
A debtor who is judged legally insolvent and whose remaining property is administered for distribution among his creditors.
Bankruptcy 
A federal law Whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Basis Point 
A unit of measure for the change in interest rates that is equal to .01 percent (for example 100 basis points equal 1%).
Bear Market 
A period when the stock market in general declines.
Bearer 
The person actually holding a legal instrument, such as a check, payable to "bearer" or endorsed in blank.
Beneficiary 
A person who is entitled to the balance in an account upon the death of the owner (trustee) of the account.
Beta 
A measurement of a stock’s performance calculated from past price patterns indicating how much a stock price can be expected to move in relation to a change in the market as a whole.
Bond 
1. An interest bearing certificate of debt, usually issued by a government or corporation, by which the issuer obligates itself to pay the principal amount at a specified time and to pay interest periodically. 2. A legal contract by which an insurance company agrees to pay, within stated limits, for financial loss caused by the default or dishonest acts of a third party.
Bond Rating 
A judgment about the ability of a bond issuer to fulfill its obligation to pay interest and repay the principal when it is due.
Borrower 
A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Broker 
A member of a stock exchange firm or an exchange member who handles orders to buy and sell securities and commodities for a commission.
Budget 
A detailed record of all income earned and spent during a specific period of time.
Building Code 
Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.
Bull Market 
A period when the stock market in general increases.
Bylaws 
The rules adopted by the shareholders and Board of Directors to define the field of membership, set the par value of shares and give the general method by which corporate functions are to be operated.
Canceled Check 
A check that has been paid against the maker's account by the drawee bank and has been stamped with the paid date and the word "paid" on the face of the check.
Cap 
A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.
Capacity 
Your ability to make your mortgage payments on time. This depends on your income and income stability, your assets and reserves, and the amount of your income each month that is available after you have paid for your housing costs, debts and other obligations.
Capital gain (and loss) 
The difference between the price at which you buy an investment and the price at which you sell it.
Cash Advance 
A cash loan from a financial institution; obtained with a credit card (i.e., VISA) or a check that accesses a line of credit.
Cash Item 
An item (usually a check) that a credit union accepts for immediate credit to an account or that they will exchange for cash.
Cash Reserves 
A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Cashier's Check 
A check drawn by a financial institution on its own funds. The maker and the drawee bank are the same.
Certificate of Deposit (CD) 
An instrument that is issued by the credit union in the name of the member stating that a certain sum of money is on deposit and that the member agrees to keep this money at the credit union for a certain period of time. CDs vary widely in amount and term, and the rate of interest depends on both of these factors.
Certificate of Title 
A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Certified Check 
A personal or business check for which payment is guaranteed by the drawee bank. Proof of the guarantee is shown when the bank stamps the word "certified" on the face of the check.
Charge Off 
To treat as a loss.
Check Clearing 
The process of sending checks through the nations banking system for delivery to drawee financial institutions for final payment against the makers checking accounts.
Churning 
Excessive buying and selling in a customer’s account undertaken to generate commissions for the broker.
Closed
End credit credit contracts that specify the time period over which the loan or sales contract will be repaid, the total amount due, and the number of payments and due dates on which they fall.
Closing (Closing Date) 
Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.
Closing Agent 
A person that coordinates closing related activities, such as recording the closing documents and disbursing funds.
Closing Costs 
Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application. They include expenses such as points, taxes, title insurance, mortgage insurance, commissions, and fees.
Collateral 
Property, which is pledged as security for a debt. In the case of a mortgage, the collateral would be the land, the house, and other buildings and improvements.
Collateralized Loan 
Loan in which member owns collateral free and clear (i.e. car, boat, recreational vehicle).
Collateral 
Property belonging to the borrower that is signed over to the credit union to sell if the loan is not repaid. Collateral can be securities, such as stocks, bonds or physical property, such as a home or a car.
Collected Funds 
Funds deposited in the bank for which payment has been received, and which are available for the depositor's use.
Comaker 
A person, other than the borrower, who signs a note in order to give additional protection to the creditor granting the loan, because of the uncertain credit quality of the borrower.
Commercial Loan 
A short term loan made to a business, which is repayable with interest due, either in a lump sum or a series of payments.
Commission 
An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction.
Commitment Letter 
A letter from your lender that states the amount of the mortgage, the number of years to repay the mortgage (the term), the interest rate, the loan origination fee, the annual percentage rate and the monthly charges.
Compound Interest 
Interest added to the principal and itself begins to earn interest.
Concession 
Something yielded or conceded in negotiating a transaction.
Condominium 
A form of ownership in which individuals purchase and own a unit of housing in a multi unit complex; the owner also shares financial responsibility for common areas.
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