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Everett, MA
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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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Acceleration clause – A clause of a legal contract 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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