Financial Terms

This is a portion of a borrower’s monthly payments held by the lender to pay for taxes, insurance, and other items as they become due.

A savings account on which no transaction has occurred, except the crediting of earnings, for a specific number of years – also called a dormant account.

A published rate used by lenders to calculate interest adjustments on ARMs (Index+Margin=Interest Rate). Some indexes are more volatile than others. Some common indexes are one-year Treasury bills, COFI (Cost of Funds Index) and six-month LIBOR (London Interbank Offered Rate).

An IRA is an interest-earning retirement savings account in which the allowable contributions and earnings are not taxed until the funds are withdrawn after age 59 ½.

The rate charged during the first interval of an ARM.

This refers to the condition of a person who is unable to pay his debts as they fall due.

Installment credit is the practice of paying for goods or services after receiving them by making two or more payments within a specified period.

A fee paid for using money that belongs to another, usually expressed as an annual percentage of the amount used. A financial institution makes periodic payments of interest to savers for the use of their deposited funds. A borrower pays interest to the financial institution for the use of its funds.

A financial institution automatically deposits this interest to an interest-bearing account.

Interest generated but not yet credited or paid.

Interest that a financial institution mails directly to a depositor.

An interest rate is the percentage of the principal paid by the borrower to the lender for the use of their money.

A safeguard built into ARMs to prevent drastic changes in interest rates.

An outlay of a sum of money to be used in such a way that a profit or increase in capital may be expected.

Liability shared among two or more people, each of whom is liable for the full debt.

A mortgage larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, currently over $275,000. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

This is a mortgage subordinate or secondary to another mortgage. In the case of a foreclosure, a senior mortgage will be paid first.

A late charge is a penalty fee imposed by a lender for delinquent payments.

This is an alternative financing option that allows low- and moderate-income homebuyers to lease a home from a nonprofit organization with an option to buy. Monthly rental payments cover mortgage payments and include an additional amount, which is saved toward a down payment.

The account balance after all activity for the previous day has been posted to the account.

A person appointed by the court to manage any substantial property of a minor.

The bank, mortgage company, or mortgage broker offering the loan.

A liability is an item of value that is part of the overall debt or obligation of a person or business. For example, a mortgage is a liability of the homeowner/borrower, but the same mortgage is an asset of the savings and loan/lender.

The interest rate charged among banks for short-term Eurodollar loans, and a common index for ARMs.

This is a claim by one person on the property of another person, making the property security for the payment of a debt.

The agreed upon length of time in which a loan must be repaid.

The highest interest rate that can be charged for an adjustable-rate mortgage during the life of the loan.

A preestablished loan authorization with a specified borrowing limit extended by a lending institution to an individual or business based on creditworthiness. A line of credit allows borrowers to obtain a number of loans without reapplying each time as long as the total of borrowed funds does not exceed the credit limit.

The collection of mortgage payments from borrowers and related responsibilities, such as handling escrows for property tax and insurance, foreclosing on defaulted loans, and remitting payments to investors.

Document required by lenders prior to loan approval containing detailed information about the borrower and property.

Fee paid by prospective buyer to lender when applying for a mortgage.

To make or issue a loan; the process whereby a lender qualifies a borrower, appraises the collateral, processes all documents, advances funds and places the loan on the books.

Fee charged by a lender for processing a mortgage, usually expressed as a percentage of the loan (or points), which pays for the work in evaluating and processing the loan.

All the steps taken by a lending institution from the time a loan application is received to the time the loan is closed and placed on the books, including taking the application, conducting the credit investigation, evaluating the loan terms and other steps.

The specifications in a loan agreement that prescribe the loan amount, interest rate, length of time in which to repay the loan and any other enforceable agreements entered into by the borrower and lender to affect the advance of funds.

The relationship expressed as a percentage of the amount of money loaned to the appraised value of the real estate pledged as security for the loan. For example, an $85,000 loan on a $100,000 house would have a loan-to-value ratio of 85%.

A lender’s guarantee of an interest rate for a set period, usually between loan application and loan closing – a lock protects the borrower against rate increases during that time.