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A B C
D E F G H
I J K L M
N O P Q R
S T U V W X
Y Z
A B C
D E F G H
I J K L M
N O P Q R
S T U V W X
Y Z |
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Account hold – A
warning place on a deposit, loan or other account to indicate
the need for special handling.
Accrue – The action of increasing or accumulating.
It is used in accounting in regard to depreciation expense,
income, interest and other factors.
Accrued interest – The interest that has
been earned but not received.
Adjusted gross income – The gross income
less the total allowable adjustments for federal income
tax purposes.
Allowable distributions – The distributions from
IRAs between ages 59 and 70, in any amount; or, after
age 70 either (a) in full or according to payout schedules,
or (b) as a consequence of the participant’s death
or disability.
Appreciation – The increase in value of
a material item, especially an increase in market value
of real
estate.
Automated clearinghouse (ACH) – An organization
formed by financial institutions using a computer-based
facility to settle automatic payment and deposit transactions
among financial institutions in a given geographic area.
Automated teller machine (ATM) – A device
that is similar to a cash dispenser in purpose and operation.
However, an ATM performs a full range of transactions,
usually including deposits of funds and transfers.
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Bankruptcy – The legal process
in which a person declares his or her inability to pay
debts, any available
assets are liquidated and the proceeds are distributed
among creditors. The person designated to receive the
benefits accruing from the funds in a trust account or
an insurance policy.
Blue chip stock – The common stock of large,
fairly stable companies that have shown consistent earnings
and usually, have a long-term growth potential.
Bond discount – The difference between the
purchase price and par value of a bond when the par value
exceeds
the purchase price.
Bond premium – The difference between the
purchase price and par value of a bond when the par value
is less
than the purchase price.
Branch office – An additional office, physically
separate from the main office of a savings institution
but subject to the main office’s direction and
control, at which deposits or withdrawals and loan payments
may be made.
Broker – A person who acts as an agent for
others in selling or buying securities, real estate,
insurance,
or other services or products.
Brokered funds – The savings deposits, in
the form of certificates of deposit, that are placed
in an institution
by a broker acting on behalf of an investor. Fees and
commissions are paid to the broker by the savings institution.
Bull market – A condition of a stock market
characterized by increased buying and rising prices.
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Call option – The option
to buy a given amount of a commodity at a specified price
during a specified
period of time.
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.
Capital gain or capital loss – The
profit or loss resulting from the sale or exchange of
real estate, securities
or other capital assets.
Capital market – A financial market for
long-term debt obligations and equity securities.
Cash equivalent – A term referring to instruments
that are easily converted into cash, such as receivables,
US Government Securities, short-term commercial paper,
and short-term municipal and corporate bonds and notes.
Cash flow statement – An accounting statement
which combines the cash income from the Income Statement
with
the charges in the Balance Sheet accounts to arrive at
the actual cash generated by the company over a given
period of time.
Cash market – The market for commodities
or securities in which delivery occurs immediately; also
called the
spot market.
Chapter 7 bankruptcy – A type of bankruptcy in
which the debtor’s assets are liquidated and distributed
among creditors. Also called straight bankruptcy.
Chapter 11 bankruptcy – A type of bankruptcy in
which a borrower’s assets are distributed to creditors
according to a plan constructed by the borrower or creditors
and in which creditors classify their claims in the way
most beneficial to them.
Chapter 13 bankruptcy – A type of bankruptcy
in which a debtor proposes a method for partially or
wholly
repaying debts while retaining use of the assets.
Check – A written unconditional order to a drawee
institution to pay out a definite sum of money from the
maker’s account.
Club account – A deposit 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.
Commercial paper – An unsecured promissory
note issued by a corporation at a discount from face
value;
it is to be redeemed in a short period of time, usually
90 days. Exempt from SEC registration when maturity is
under 270 days.
Common stock – The shares of a corporation, representing
proportionate ownership or equity, that give the holder
an unlimited interest in the corporation’s earnings
and assets after prior claims have been met.
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.
Conditional endorsement – A type of restrictive
endorsement on a negotiable instrument that designates
both the next titleholder and conditions to the endorser’s
liability.
Conduit – A type of rollover IRA for use
by individuals who want to roll over all or any portion
of a lump sum
distribution from one retirement plan to another.
Continuous compounding – A term that refers
to compounding over the smallest time interval possible
and that yields the highest effective interest rate.
Contract – A binding agreement between two
or more persons or parties. Contracts are carefully spelled
out
and watched over by government regulators.
Contributory IRA – A type of Individual
Retirement Account established by individuals who set
aside all
or a portion of their yearly compensation; also called
a regular or individual IRA.
Convertible – The term used for a bond or
preferred stock that, under specified conditions, may
be exchanged
for common stock or another security, usually of the
same corporation.
Co-signer – An individual or entity that
signs a legal document on an equal basis with the signer.
On
a promissory note, all cosigners are individual and jointly
liable for repayment of the full debt.
Cost of living – The amount of money necessary
to pay taxes and to purchase goods and services related
to a given standard of living. Unlike the consumer price
index, the cost of living takes into account changes
in buying patterns and tastes.
Counter-signature – An additional signature
given to attest the authenticity of an instrument.
Coupon book – A set of payment cards or
computer cards that the borrower returns to the institution
owner
at a time with regular loan repayments or with deposits
for savings accounts such as a club account.
Credit bureau – An agency that collects
and distributes credit-history information on individuals
and businesses.
Credit rating – A professional estimate
of the financial position and integrity of a person or
company,
based on p resent financial condition, past credit history
and other relevant factors.
Creditor – An individual or business to
whom money or something of value is owed.
Currency – Coins or paper money used as
a medium of exchange.
Current asset – An asset expected to be
converted into cash within 12 months.
Current liability – A liability scheduled
to be paid within the next 12 months.
Current yield – The annual income divided
by the current price of the security; annual return.
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Decedent – A decreased person, ordinarily used
with respect to one who has died recently. A deposit
account held in the name of an executor or administrator
of a deceased person’s estate is called a decedent
estate account.
Demand deposit – An account that is withdrawal
le by check at the demand of the depositor; also called
a checking account.
Denomination – The value or size of a series
of coins or paper money.
Deposit – The placement of funds in an account
at a financial institution subject to terms agreed upon
by the depositor and the institution.
Direct transfer – The moving of IRA funds
from one IRA trustee directly to another IRA trustee,
with
no check made payable to the IRA participant. The direct
transfer is not subject to any time or frequency restrictions.
Discount – The difference between the selling
price and the par (face) value of a bond. A bond selling
at
a discount sells for less than its par value.
Discount broker – A stockbroker or brokerage
house that processes the purchase or sale of securities
at
a discount from the customary broker commission. Generally,
the discount broker does not provide market advice.
Dividend – The portion of a corporation’s
profits paid to each stockholder’s investment.
Dormant account – A deposit account on which
no transaction (except the crediting of earnings) has
occurred
for a specified number of years. At the end of the specified
time period, funds in the account escheat to the state.
Draft – An order for the payment of money,
drawn by one person or organization on another; a bill
of exchange
payable on demand.
Drawee – The bank on which a check is drawn.
Drawer – The party who issues an order,
draft, check or bill of exchange.
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Earnings per share (EPS) – The
total after-tax earnings of a corporation divided by
the total number
of its shares outstanding.
Effective interest rate – The actual return
one receives on an investment.
Effective yield – The actual rate of return
to the investor.
Endorse – The person or entity to whom a
bill of exchange, promissory note, check or other negotiable
instrument is endorsed.
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.
Endorser – The person or entity that endorses
a negotiable instrument.
Estate – The ownership rights that a person
has to lands or other property; the term also denotes
the
property itself.
Estate planning – The orderly process of
planning assets, bequests and estate disposition for
such purposes
as insuring liquidity, providing for family needs, and
avoiding forced sales and unnecessary taxes.
Excess contribution – An amount greater than the
Individual Retirement Account participant’s annual
allowable contribution. An excess contribution is subject
to a 6% penalty imposed on the participant by the internal
Revenue Service.
Executor/executrix – The individual appointed
in a will and approved by a probate court to administer
the disposition of an estate according to directions
in the will.
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Face value – The value of a bond at which it can
be redeemed at maturity. Same as its “redemption
value.” Face value also is called par value in
bonds; the term should not be confused with the par value
of stocks.
Federal Deposit Insurance Corporation (FDIC) – An
instrumentality of the federal government that insures
deposit accounts in member commercial banks, bank holding
companies and mutual savings banks.
Federal reserve note – The paper currency
placed in circulation by the Federal Reserve Banks and
issued
in denominations ranging from $1 to $100.
Fiduciary – A person or corporation with
the responsibility of holding or controlling property
for another.
Fiduciary account – A deposit account containing
funds owned by one individual but administered for that
individual’s benefit by another individual who
is legally appointed as conservator, trustee, agent or
other fiduciary.
Financial leverage – The use of borrowed
funds in an effort to increase the return on equity.
Fiscal policy – The federal government taxation
and financial activities, largely in the hands of the
President and Congress.
Fixed annuity – The guaranteed income, received
at regular intervals, for which the basic amount of each
payment has been fixed n advance; minor variations may
occur with interest rate changes.
Fixed assets – The tangible assets, such
as office buildings, furniture, fixtures and equipment,
that are
used in the operation of a business, that have a relatively
long life and that re not intended to be sold in the
normal process of the business.
Fixed income investment – A type of investment
in which the dividend, interest or rental income is fixed
contractually.
Forgery – The false making or altering of
any written instrument with intent to defraud.
Future value – The amount to which a sum
of money earning compound interest will grow by a certain
date.
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Grantor – The person who
makes a settlement or creates a trust of property; also
called a settler.
Gross income – All income that is not legally
exempt from tax.
Gross operating income – An accounting
term that includes income received from the ordinary
operation
of the business before deducting expenses of operation.
Guarantor – The individual or
entity that guarantees to repay a debt if the borrower
defaults.
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Household – The persons
residing in a discrete housing unit with access to either
the outside or a public
area; called a family when members are related by blood
or law.
Inheritance tax waiver – A
release, signed by the appropriate state taxing official,
relinquishing any
claim of the state to the assets of an estate, or a portion
thereof, under consideration.
Insurance – The indemnification
against loss from a specific hazard or peril.
Insurance fund – The FDIC or FSLIC
funds reserved to offset any claims made by depositors
of defaulted
member institutions.
Intangible asset – An item, owned
by a business entity, that has value but no physical
characteristics;
for example, patents, copyrights and goodwill.
Intestate – The term that describes
an estate left by a decedent who did not draw up a will
specifying how
his or her estate should be distributed.
Investment – An outlay of a sum
of money with the expectation that a profit or income
will be realized.
Investment banker – An individual
who deserves as a liaison between businesses that need
capital and
investors with funds to invest by underwriting security
issues and providing other services for the issuing company
and investors.
Investment company – A company
that invests pooled funds of shareholders in securities
of other organizations.
Examples are mutual funds and closed-end funds.
Irrevocable trust – A trust in
which the grantor does not reserve the right to annul
the trust agreement.
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Land trust –A trust in which
all assets consist of real property holdings.
Leeway period – The period of
time during which IRAs may be established or IRA contributions
may be made,
applying retroactively to the preceding taxable year.
The leeway period for IRAs extends to April 15.
Legal tender – The coin or paper
currently required by law to be accepted in payment of
obligations.
Lessee – A person or business
that is granted use and possession of property in return
for rent. In real
estate transactions, the lessee is known as the tenant.
Lessor – An owner of property
who allows another to use it in return for rent.
Liabilities – The amount that
one entity or person owes to others; for example, deposit
accounts.
Lien – A claim that one person,
or organization, has upon the specific property of another
as security
for the payment of a debt or charge.
Liquidation – The process of converting
assets into cash and discharging liabilities.
Liquidity – A measure of the ability
of a business, individual or institution to convert assets
to cash without
significant loss at a particular point in time.
Living trust – A trust that transfers
control of funds or property from a grantor to a trustee
who distributes
the income according to the terms of the trust agreement;
known as a living trust because it is operative during
the lifetime of the grantor.
Load fund – A class of mutual
fund in which a sales commission is charged when a purchaser
buys shares.
Lock box – A post office box to
which customers mail payments to an institution. Payments
are picked
up for processing by either the institution itself for
another institution that has contracted t provide these
processing services.
Long-term asset – An asset whose
economic life is expected to exceed one business cycle,
normally greater
than one year.
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.
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Magnetic ink character recognition (MICR) – The
electronic reading of machine-legible characters printed
in magnetic ink, such as those appearing on checks.
Maturity amount – The value of
an investment at the end of its economic life.
Money – A generally accepted medium
of exchange measure of value or means of payment.
Money market – The common term
for the mechanism whereby loanable funds are traded in
the form of short-term
debt securities.
Money market fund – A mutual fund
that invests in short-term obligations only, such as
commercial paper
or Treasury bills. The yields on these investments fluctuate
due to varying interest rates and the continuously changing
investment portfolios.
Municipal bond – The obligation
of a state or local government agency to repay with interest
a sum of money
borrowed for municipal purposes, such as the building
of low-income housing, improving streets or building
bridges. Commonly called municipals.
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Negotiable – A
term meaning assignable or transferable, in lieu of money,
in the ordinary course of business.
Negotiable investment – An investment that can
be sold.
No load fund – A class of mutual
fund in which no load fee (sales commission) is charged
when a purchaser
buys shares.
No-par stock – A stock issued
with no face value.
Notary public – A public officer
authorized to attest to the signing of documents (such
as deeds or
mortgages) requiring certification. The person signs
and affixes a seal to the document.
NOW account drafts – The negotiable
instruments written on a NOW account to make third-party
payments.
May also be referred to as a check.
NSF – Not sufficient funds.
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Option – The option
to sell a given amount of a commodity at a specified
price during a specified period
of time.
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 n a customer’s account.
Over-the-counter (OTC) – A means
of rating shares of a company not listed on an organized
stock exchange.
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Par value – 1.
A value that has been assigned to a share of stock b
the corporate charter. This value
has nothing to do with the market value of the share.
2. The value of a bond at maturity.
Passbook – The evidence of ownership of a savings
account; the customer’s record of transactions
on the account, such as deposits, withdrawals and earnings
received.
Payee – The party to whom a check
is payable.
Payment cap – A restriction placed
upon the extent to which the monthly payment can change
during the term
of an adjustable rate mortgage loan or from one adjustment
period to another.
Pension fund – A fund set up to
collect regular premiums from individuals and their employers,
invest
those funds safely and profitably, and pay out a monthly
income when an individual reaches retirement age.
Period certain – A predetermined amount of time
during which a participant receives allowable distributions
from an IRA. A period certain may be any length of time
so long as the period is less than the participant’s
life expectancy.
Personal check – A check drawn on a depository
institution b an individual against that individual’s
own funds.
Personal property – The movable
items that a person owns, either tangible, such as furniture
and other merchandise,
or intangible, such as stocks and bonds.
Personal savings – The balance
remaining after deducting expenditures for goods and
services from the
after-tax income of individuals and families.
Point-of-sale, place-of-business (POS or POB) – The
retail firm where an electronic funds transfer system
(EFTS) computer terminal is located.
Postal money order – An instrument,
like a check, sold by United States Post Offices for
payment of a specified
sum of money to the individual or firm designated by
the purchaser.
Power of attorney – A document
that authorizes one person to legally act in place of
another person
under specified conditions for specific purposes.
Preferred stock – A stock yielding
a fixed-dollar income. The stockholder has a claim to
earnings and assets
before the holder of commons tock, but after the claim
of bonds.
Present value – A representation
of the current value of a sum that is to be received
at some time in
the future.
Price-earnings (p/e) ratio – A
ratio often used by investors to determine the value
of a stock. The ratio
is the market value of a share divided by its earnings
for the previous year.
Proxy – 1. The authority or power
to act for another. 2. A document giving such authority.
3. The person authorized
to act for another.
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Rate of return – The
measure of profitability of an investment expressed as
a percentage rate of gain
or loss per year on the amount invested. Also known as
return on investment.
Rating – A formal opinion in securities
trading given by an outside professional service on the
credit
reputation of a bond issuer and the investment quality
of its securities. This opinion is expressed in letter
values (AAA, Baa-1, etc.)
Real assets – The tangible assets,
in contrast to financial assets or securities. Included
are real
estate, land, gold, coins, stamps, art and antiques.
Real time – A term that pertains
to the processing of information or transactions as they
actually occur.(1)
An evidence of debt or of property (such as a bond or
stock certificate. (2) An item given as a pledge of repayment.
Recourse – The right to demand
payment from the maker or endorser of a negotiable instrument.
Registered investment advisor – A
person who is registered with the Securities and Exchange
Commission
and who provides advice on a fee basis regarding the
purchase or sale of securities.
Registered representative – An
individual who handles the buying and selling of securities
for customers and
who is licensed through the national Association of Securities
Dealers and sponsored by a broker-dealer.
Rescission – Rescission by the
owner-depositor is the cancellation of power of attorney.
Restrictive endorsement – An endorsement
that limits the negotiability of an instrument or contains
a definite
condition as to payment. It purports to preclude the
endorsee from making any further transfer of the instrument.
Retirement bond – A bond issued
by the US government as part of an individual retirement
savings program,
also known as a Qualified Retirement Bond.
Retirement savings programs – A
general term relating to the three programs created by
the Employee Retirement
Income Security Act of 1974 (ERISA); IRAs, retirement
annuities and retirement bonds.
Revocable trust – A trust in which
the grantor reserves the right to annual the trust; if
this is done,
the trust property reverts back to the grantor.
Risk – The probability of loss,
or the degree of uncertainty, associated with the return
on an investment.
Rollover – A distribution of the
funds from a qualified retirement plan to a participant
for the establishment
of another qualified retirement savings plan.
Routing and transit numbers – The
identification numbers that appear on each check or draft
designating
the institution and its location for purposes of facilitating
the check-collection process.
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Safe deposit box – A
space in a vault that is returned to an individual for
the safekeeping of valuables.
Savings account – Savings accounts
bear interest without specific maturity dates. There
are no ceilings
on such interest.
Savings account loan – A loan
secured by the pledging of savings funds on deposit with
the institution.
Saving certificate – The evidence
of ownership of a savings account that typically represents
a fixed
amount of funds deposited for a fixed term.
Securities market – A mechanism
for the buying and selling of securities between investors;
examples
are the over-the-counter markets, New York Stock Exchange
and American Stock Exchange.
Simple interest – A method of calculating interest
in which the amount of the interest is computed on the
principal balance of a loan or deposit account for each
given period.
Single premium life – A type of
permanent life insurance that can be paid for in one
payment. The cash
value is usually higher and the death benefit lower than
in conventional annual premium policies.
Special endorsement – An endorsement
that transfers title to a negotiable instrument to a
party specified
in the endorsement.
Spousal IRA – A type of contributory
IRA that enables a working spouse to establish an IRA
for his or her nonworking
spouse. Spousal IRAs were created by the Tax Reform Act
of 1976.
Stale-dated check – A check payable
on demand that is uncashed for an unreasonable length
of time after
its issue.
Stock – A certificate in evidence of a shareholder’s
proportionate ownership of a corporation. The owner may
have voting rights and rights to any dividends declared
by the board of directors. Also called guaranty stock.
Stock dividend – The distribution
of shares of stock in direct proportion to the number
of shares originally
held by the stockholders of a corporation.
Stockholder – A person who owns
part of a corporation as represented by the shares held.
Stop-payment order – An order
by the customer instructing the financial institution
to refuse payment of a specific
draft or check.
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Tax deductions – The
expenditures, as allowed by the IRS, that reduce the
amount of taxable income; for
example, medical expenses, charitable donations and interest
paid.
Tax-deferred income – The income
upon which tax liability originates (is established)
but income tax
payment on this income amount is postponed.
Tax-deferred investment – An investment
on which the payment of income tax owed is postponed
until a later
time, usually when a person is in a lower tax bracket.
Tax-exempt – An investment that
is not subject to federal and/or state income tax.
Taxable year – The yearly period
used as the basis of federal income tax calculations;
also known as the
tax year.
Tax-sheltered income – The total
amount of tax-deferred and tax-exempt income earned in
a given taxable year.
The result is reduced tax liability in the particular
taxable year.
Tax sheltering – A legal means
of postponing or reducing the amount of tax due.
Term life insurance – A type of life insurance
that provides only a death benefit to be paid to a designated
beneficiary upon the insurer’s death. In general,
there is no cash value feature, and coverage terminates
at the end of the specified term.
Tiered-rate account – A special
classification on which earnings may be paid at different
rates depending
upon the balance.
Time deposit – A deposit of funds
in a savings institution that may be withdrawn under
stated conditions
as to the time or notice required; also called term deposit.
Totten Trust – A revocable trust
account established without a written trust agreement.
Transaction – An event that causes
some change in the assets, liabilities or net worth of
a business.
Transaction account – A deposit account that permits
payments to be made directly to a third party on the
depositor’s negotiable or non-negotiable order.
Examples are NOW accounts, checking accounts and third-party
payment accounts.
Traveler’s check – An order, over the signature
of the issuing company, to pay on demand the amount shown
by the denomination of the check. Traveler’s checks
may be cashed almost anywhere in the world and are insured
against loss, theft and destruction.
Treasury bill – A short-term Treasury
obligation issued at a discount under competitive bidding,
with
a maturity of up to one year. It is issued payable to
the bearer only, and is not sold in amounts of less than
$10,000.
Treasury bond – A federal government
obligation ordinarily payable to the bearer, that is
issued at par,
with maturities of more than five years and interest
payable semiannually.
Treasury certificate – A US security
usually issued at par, with a specified rate of interest
and a maturity
of one year or less; issued payable to the bearer and
not sold in amounts of less than $1,000.
Treasury note – An obligation
of the US, usually issued payable to the bearer, with
a fixed maturity of
not loess than one year or more than 10 years; issued
at par, with a specified semiannual interest return.
Trust – A completed transfer of
ownership of a piece of property by the owner (grantor)
to another (the
trustee) for the immediate or eventual benefit of a third
person (the beneficiary).
Trust account – (1) A deposit
account, established under a trust arrangement, that
contains funds administered
by a trustee for the benefit of another person or persons.
(2) An escrow account.
Trust agreement – A written agreement
under which a grantor transfers legal ownership of property
to another
person or entity for the benefit of a third person subject
to the various incidents of a trust.
Trustee – The legal title holder
and controller of funds in a trust account established
for the benefit
of another according to a trust agreement.
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US Savings Bond – The
interest-bearing certificate of debt issued by the US
Treasury. It is nontransferable,
noncallable, registered, redeemable at specified redemption
values, variable as to time or maturity and fully taxable.
Universal life – A form of permanent
life insurance in which the death benefit may be adjusted
up or down
and premium payments may vary from year to year.
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Variable rate – An
account with an interest rate that fluctuates during
the term according to a predetermined
schedule and formula index.
Yield – The return
on an investment, expressed as a percentage of the market
price or, where the investment
is owned, of the price paid for its originally.
Yield curve – A line or curve
that graphically represents the relationship between
interest rates of
securities having equal qualities but different maturities.
Yield interest rate – The actual
rate of return on investor receives on an investment.
Yield to maturity – A yield concept
designed to give the investor the average annual yield
on a security.
This calculation is based on the interest rate, price
and length of time to maturity; and takes into account
any bond premium or discount.
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that states the lender’s right to demand full
payment of the debt in the event of a default. It may
appear on a promissory note, mortgage instrument or
security agreement.
Adjustment period – The time
period between one interest rate change and the next
for an adjustable
rate mortgage.
Amortization – The repayment
of a debt in a specified number of equal periodic installments
that include
a portion of principal and accrued interest. Most home
mortgage loans are fully amortized.
Assignment – The written transfer
of some or all ownership rights to real or personal
property from
one party to another; the transfer may be actual or
conditional upon the performance or nonperformance
of specified acts by either party to the contract.
Assignment of rents – A legal
document that assigns all rents and income from a property
to the mortgagee
if a mortgagor defaults.
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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 slump sum at the end of the term.
Binder – A written statement
binding two parties to an agreement until a formal
contract can be executed.
A binder is used to secure insurance for a mortgage
until a complete policy is issued.
Capacity – A borrower’s financial ability
to repay a loan according to scheduled payments. It
is determined by calculating an applicant’s total
income minus total expenses, usually on a monthly basis.
Closed-end credit – A type
of credit whereby the specific amount of credit to
be extended, length
of time for repayment and payment amounts are determined
before purchase.
Collateral loan – A loan for
which the borrower has pledged certain property as
security for the payment
of an obligation.
Collateral pledge – The agreement under which
a third party pledges a deposit account or other property
as additional security for the lender’s mortgage
secured advance of funds to a borrower.
Collection – The actions taken by a lender to
contact delinquent borrowers to establish the lender’s
firm position in dealing with delinquency and to relay
a sense of urgency to the borrowers about submitting
the past due amount.
Commercial loan – A loan for
the purpose of financing inventory or operating expenses
of a business.
Commercial mortgage loan – A
loan secured by real estate. The real estate is used
for business purposes
or to generate income. Also known as income property
loan.
Commitment fee – The payment made b y a potential
borrower to a potential lender for the lender’s
promise to lend money at a specified future date.
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.
Conforming mortgage loan – A
mortgage loan that conforms to regulatory limits such
as loan-to-value
ratio, term and other characteristics.
Construction loan – A short-term
loan for financing the cost of construction. The lender
makes payouts
to the builder at periodic intervals as the work progresses.
Consumer Credit – The credit
extended to a natural person for personal, family or
household purposes.
Conventional loan – A mortgage
loan made by a savings institution without FHA insurance
or VA guarantee;
called a conventional loan because it conforms to accept
standards, modified within legal bounds by mutual consent
of the borrower and the lender.
Conversion clause – A provision,
in some adjustable rate loans, that allows the borrower
to change from
an adjustable to a fixed0-rate loan at a specified
time during the term of the loan.
Covenant – A constraint in a
loan agreement that sets forth certain requirements
as to what the borrower
will and will not do.
Credit – The exchange of goods
or services on the promise of future payment.
Credit risk – The degree of
loan repayment uncertainty or risk that the institution
assumes in advancing funds
to a borrower; it is based upon credit information
obtained.
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Debt to income ratio – The ratio that expresses
the relationship of the sum of the applicant’s
monthly credit obligations to his or her monthly income.
Debtor – A person who owes money
or something else of value.
Deed – A written agreement in
proper legal form that transfers ownership of land
from one party to
another.
Default – The failure to do
what is required by law or by the terms of a contract.
Deficiency judgment – A legal
judgment given when the property securing a debt is
insufficient to
satisfy the remaining debt.
Department of Housing and Urban Development
(HUD) – The
cabinet department of the federal government responsible
for federal housing programs and urban affairs; it
governs FHA and GNMA operations.
Disclosure statements – The
information required by government regulations to be
given to a borrower
prior to consummation of a loan.
Discounted interest – A deduction
from principal for finance charges t the time a loan
is made. The
remaining amount is repaid through installment payments.
Draw – The release of a portion
of the construction loan proceeds according to the
schedule of payments
in the loan agreement; also called advance, disbursement,
payout or take down.
Due-on-sale clause – A mortgage
clause that demands payment of the entire loan balance
upon sale or other
transfer of the real estate securing the loan.
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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.
Encumbrance - A claim or liability attached to real
property, such as a mortgage or unpaid taxes.
Equity line of credit – An open-end loan that
is secured by the borrower’s ownership interest
in real property and that may be made for a variety
of purposes.
Equity loan – A loan that uses the borrower’s
equity in real property as security. An equity loan,
which may be made for a variety of purposes is also
known as a second or junior mortgage loan.
Escrow closing – A kind of loan
closing in which an escrow agent (a disinterested third
party) accepts
the loan funds and mortgage from the lender, the downpayment
from the lender, the downpayment from the buyer and
the deed from the seller.
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Farmers Home Administration (FmHA)– An
agency of the federal government that makes, participants
in and insures loans for the construction and purchase
of homes in rural communities.
Federal National Mortgage Association (FNMA) – A
government sponsored but privately owned secondary
mortgage market corporation that buys and sells mortgage-backed
securities and FHA, VA and conventional loans; commonly
called Fannie Mae.
Fee simple estate – A type of real estate ownership
in which the owner is entitled to all of the rights
and privileges, and accountable for the responsibilities
incident to his or her property.
FHA Title I Loan – A loan for
the purpose of home improvement. It is insured for
90% of loss by
the Federal Housing Administration if the borrower
does not repay.
Forbearance – The act by the lender of refraining
from taking legal action on a mortgage that is delinquent,
usually contingent upon the borrower’s performing
certain agreed-upon actions.
Foreclosure by court action – A
legal procedure in which the lender files suit against
the defaulting
borrower, and the court issues a decree establishing
a debt and arranges for public sale of the property
by a court officer.
Fully amortizing loan – A loan
in which the principal and interest will be repaid
fully through regular installments
by the time the loan matures.
Future advances clause – A clause
in a mortgage instrument that allows a lender to advance
additional
funds without executing a new mortgage instrument.
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Grace period provision – A
clause in a promissory note stating that a borrower
who has prepaid a loan
may at any time skip payments until the loan balance
equals the amount it would have been if the borrower
had not prepaid.
Hazard insurance – A
form of insurance coverage for real estate that includes
protection against loss
from fire, certain natural causes, vandalism and malicious
mischief.
Home – A residential structure
containing one, two, three or four dwelling units,
as defined in government
statistics.
Home financing – The providing
of funds, secured by a mortgage, for the purchase or
construction or
improvement of a residential structure containing one,
two, three or four dwelling units.
Homeowner’s insurance – A
broad form of real estate insurance coverage that combines
hazard
insurance with personal liability protection and other
items.
Improved real estate – The
real estate on which there is a structure (or structures)
to be used for
home or business purposes or both.
Interim loan – A short-term
mortgage loan, often for the construction of a building.
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Junior lien – A
lien subsequent, or second inline, to the claims of
the holder of a prior lien.
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Land development loan – An
advance of funds, secured by a mortgage, for the purposes
of making,
installing or constructing those improvements necessary
to produce construction-ready building sites for raw
land.
Late charge – A penalty imposed
by the lender for delinquent repayments, as specified
in the debt
instrument.
Lien holder – A person who holds
a mortgage or has a legal claim on the specific property
of another
person as security for a debt.
Lien theory – A theory of real
estate law which holds that a mortgage conveys to the
mortgagee a claim
to, or lien on, the mortgaged property.
Lien waiver – A document signed
by a supplier and subcontractor stating that the firm
has been paid
for its work and waiving its right to file a claim
against the property.
Loan – A sum of money 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 agreement – Document which
the borrower signs that outlines the covenants which,
if broken,
allow the bank to accelerate or make demand on a term
loan.
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.
Loan fee – The initial service
charge to the borrower for placing a loan on the records
of an institution;
also called a loan origination fee, premium or initial
serving fee.
Loan origination – The steps
taken by a lending institution up to the time a loan
is placed on its
books, including solicitation of applications, application
processing and loan closing.
Loan origination fee – A one-time
charge assessed on the amount of a loan and paid at
settlement. The
fee is usually paid by buyers, but may be assumed by
a seller.
Loan proceeds – The net amount
of funds that a financial institution disburses at
the direction
of a borrower and that the borrower thereafter owes.
Loan processing – The steps
taken by an institution from the time a loan application
is received to the
time it is approved, including taking an application,
credit investigation, evaluation of the loan terms
and other steps.
Loan settlement statement – A
document, prepared for and presented to the borrower
at a loan closing,
showing all disbursements to be made from the loan
proceeds.
Loan terms – The loan amount,
interest rate and length of time granted for repayment
of the loan.
Loan-to-value ratio – The ratio usually expressed
as a percentage, that the principal amount of a mortgage
loan bears to the mortgaged property’s appraised
value, as “an 80% loan” or “95% loan
limit.”
Loan underwriting – The process
of determining the risks inherent in a particular loan
and establishing
suitable terms and conditions for the loan.
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Long-term debt – A debt that is due after more
than one year.
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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.
Mortgage bond – A bond that is secured by real
property.
Mortgage-equity analysis – A
method of estimating value by dividing the investment
in a property into
its mortgage and equity components and capitalizing.
Mortgage life insurance – An
insurance policy on the life of a borrower that repays
an outstanding
mortgage debt upon death of the insured.
Mortgagee – The institution,
group or individual that lends money on the security
of pledged real estate;
commonly called the lender.
Mortgagor – The owner of real
estate who pledges property as security for the repayment
of a debt; commonly
called the borrower.
Multifamily – A structure defined
in government statistics as containing more than four
dwelling units;
or, sometimes, used to describe a unit itself.
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Ownership – The
state of holding a lawful claim or title to property.
Partial release – An institution’s
relinquishment of its claim to some part of the real
property that
secures a mortgage loan.
Payoff – The complete repayment
of loan principal, interest and any other sums due;
payoff occurs either
over the full term of the loan or through prepayments.
Payoff statement – A formal
statement prepared when a loan payoff is contemplated,
showing the current
status of the loan account, all sums due and the daily
rate of interest. Also called a letter of demand.
Payout – The disbursement of
loan funds to a borrower. In construction lending,
the incremental
disbursement of loan funds contingent upon the completion
of a specified portion of a structure, such as a foundation,
roof, etc.
Penalty clause – (L) A clause
in a promissory note specifying a penalty for a late
payments. (B) A clause
in a savings certificate specifying a penalty for premature
withdrawal from such an account.
Period of redemption – The length
of time during which a defaulted mortgagor may reclaim
the title and
possession of his or her property by paying the debt
secured by the property.
Permanent loan – A long-term
loan or mortgage that is fully amortized and extended
for a period of
not less than 10 years.
Personal loan – An unsecured
loan usually made for the purpose of debt consolidation,
vacation or
the purchase of durable goods.
Point – An amount equal to 1%
of the principal amount of an investment or note. Points
are a one-time
charge assessed by the lender to increase the yield
on the mortgage loan to a competitive position with
other types of investments.
Power of sale clause – A clause
in a mortgage document that gives the institution the
right to sell
the property at a public auction without a prior court
judgment.
Prepayment clause – A clause
in a promissory note stipulating the amount a borrower
may pay ahead
of schedule without penalty, as well as the penalty
for larger prepayments.
Prime rate – The interest rate
charged by leading banks for loans to their most secure
customers.
Principal balance – The portion
of the loan amount not repaid, exclusive of interest
and other charges.
Promissory note – A written
promise to pay a stipulated sum of money to a specified
party under
conditions mutually agreed upon. Also called a note,
installment note, promise or bond.
Property – A piece of real estate;
or, generally, something owned or possessed.
Property assessment – The valuation
of real property for tax purposes.
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Quit claim deed – A
deed by which the owner of real estate conveys to another
whatever title or interest
he or she has to a property, but which makes no representation
that the property is free from encumbrances except
those created by the owner. A parcel of land and any
buildings or other objects permanently affixed to it.
Same as real property in some states.
Real Estate Settlement Procedures Act (RESPA) – A
federal law, enacted in 1974 and subsequently amended,
that requires lenders to provide home mortgage borrowers
with information of known or estimated settlement costs.
Real property – An area of land
and any buildings or other objects that are permanently
affixed to it.
Redemption right – A defaulted mortgagor’s
right to redeem his or her property after default and
court judgment, both before and after sale of the property.
Refinancing – The repayment
of a debt from the proceeds of a new loan using the
same property as security.
Regular mortgage – The legal
document used in most states to pledge real estate
as security for the
repayment of a debt. Also known in some states as a
deed of trust.
Reinstatement – A complete resolution
of a mortgage delinquency by the borrower, thus restoring
the loan
to current status.
Repossession – A remedy available
to lenders whereby personal property used as security
for a delinquent
debt is acquired and disposed of for the purpose of
repaying the loan in whole or in part.
Residential mortgage loan – A
loan secured by real estate of one- to four-family
dwellings.
Right of foreclosure – The right of the lending
institution to take over property and close out the
mortgagor’s interest in it if the mortgagor violates
the provisions of the mortgage or note.
Right of setoff – The right
of the creditor to commence judicial proceedings against
a borrower, sell
repossessed collateral or use other assets of the borrower
to satisfy payment of the debt.
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Satisfaction of mortgage – A
recordable instrument prepared by the lender that evidences
payment in full
of the mortgage debt. Also known as a release deed.
Seasoned loan – A loan that has been on the institution’s
books long enough to demonstrate the borrower’s
intent to repay the debt.
Secured loan – A loan for which
the borrower pledges collateral that will be forfeited
to the lender
in case of default on the loan.
Security interest – An interest
in collateral that secures payment or performance of
an obligation.
Standby commitment – A promise
to loan funds at specific terms in the future if, at
that time, the
borrower still wants the loan.
Statutory right of redemption – A defaulted borrower’s
right, in certain states, to redeem his or her property
for a specified period of time after a foreclosure
sale, by paying off the debts in default.
Subordination clause – A mortgage
clause that makes other debts or rights in the real
estate secondary
to the mortgage.
Surrender of collateral statement – The
statement in a loan contract that gives the lending
institution
the right to secure personal property without a court
order.
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Tax lien – A
government claim against real property for unpaid taxes.
Term – The time period granted
for repayment of a loan.
Term loan – A loan with a maturity
of usually three to five years during which interest
is paid but
the principal is not reduced. The entire principal
is due and payable at the end of its term.
Title – The ownership right
to property including the right to possession.
Title report – A written statement
by a title company of the condition of title to a particular
piece
of real estate as of a certain date.
Title search – A review of public records to
disclose any claims or defects in the current owner’s
title to real estate.
Town house – A low-rise, single-family
dwelling attached to two ore more similar dwellings
separated
by party walls and having separate entrances.
Truth-in-Lending Act – The popular
name for the Consumer Credit Protection Act of 1968
and its provisions
that require lenders to make certain disclosures of
financing costs to the borrower at specified times
in the loan application process.
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Underwriting – The process,
in mortgage lending, of determining the risks inherent
in a particular loan
and establishing suitable loan terms and conditions.
Unearned interest – The interest
on a loan that has already been collected but has not
yet been earned
because the principal has not been outstanding long
enough.
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