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Glossary

Glossary of Financial Terms

Adjustable Rate Mortgage (ARM)
Annual Percentage Rate (APR)
Amortization
Appraisal Fee
Appraised Value
Annual Fee
Annual Percentage Rate
Asset
Average Daily Balance
Bad Credit
Balance
Balance Transfer
Balloon Payment
Bankruptcy
Billing Cycle
Buydown
Closed-end Credit
Collateral
Cosigner
Credit
Creditworthiness
Credit Card
Credit History
Credit Scoring System
Credit Risk Score
Debt to Income Ratio
Default
Down Payment
Earnest Money
Equity
Escrow
Escrow Disbursements
Finance Charge
First Mortgage
Fixed Rate
Hazard Insurance
Housing Expenses-to-Income Ratio
HUD-1 Statement
Jumbo Loan
Liability on an Account
Loan to Value
Lock
Margin
Member
Mortgage
Negative Amortization
Note
On-Us Check
Open-end Credit
Open-end Lease
Origination Fee
Overdraft
Points (loan discount points)
Pre-approval
Principal, Interest, Taxes, and Insurance (PITI)
Private Mortgage Insurance (PMI)
Qualifying Ratios
Recission
Service Charge
Share Account
Share Draft Account
Statement
Statement Date
Surcharge
Survey
Title
Title Insurance
Variable Rate

Adjustable rate mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as tile renegotiable rate mortgage or the variable rate mortgage.

Annual percentage rate (A.P.R.)
APR is a measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.

Amortization
The process of fully paying off indebtedness by installments of principal and earned interest over a definite time.

Appraisal Fee
The charge for estimating the value of property offered as security.

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

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Annual Fee
A yearly fee charged to a card or account for keeping the account open. Some credit cards/account this fee and some do not.

Annual Percentage Rate
(APR) The cost of carrying a balance on a loan expressed as an annual percentage.

Asset
Any item that has a cash value and is owned by an individual such as property, goods, savings or investments.

Average Daily Balance
The average daily balance is a method used to calculate finance charges. It is calculated by adding the outstanding balance on each day in the billing period, and dividing that total by the number of days in the billing period. The calculation includes new purchases and payments.

Bad Credit
A term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. Poor credit can impact your ability to get a loan and often impacts your rate if you are approved.

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Balance
The total amount of money owed. It includes any unpaid balance from the previous month, new purchases, cash advances, and any charges such as an annual fee, late fee or interest.

Balance Transfer
Moving a balance (debt) from one credit card to another.   

Balloon Payment
A large extra payment that may be charged at the end of a loan or lease.

Bankruptcy
Bankruptcy is a legal declaration of the inability to repay debts.

Billing Cycle
The number of days between statement dates which is generally about 25 days.

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Buydown
A lump sum payment made to the creditor by the borrower or by a third party to reduce the amount of some or all of the consumer's periodic payments to repay the indebtedness.

Closed-end Credit
Generally, any loan or credit sale agreement in which the amounts advanced, plus any finance charges, are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed- end agreements.

Collateral
Property that is offered to secure a loan or other credit and that becomes subject to seizure if the loan goes into default.

Cosigner
Another person who signs for a loan and assumes equal liability for it.

Credit
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.

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Creditworthiness
A creditor's measure of a consumer's past and future ability and willingness to repay debts.

Credit Card
Any card, plate, or coupon book that may be used repeatedly to borrow money or buy goods and services on credit.

Credit History
A record of how a person has borrowed and repaid debts.

Credit Scoring System
A statistical system used to determine whether or not to grant credit by assigning numerical scores to various characteristics related to creditworthiness.

Credit Risk Score
A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.

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Debt to Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

Default
Failure to meet the terms of a credit agreement.

Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.

Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Equity
The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

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Escrow
An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.

Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Finance Charge
The total dollar amount paid to get credit.  Generally the total is accrued over the life of the loan.

First Mortgage
The primary lien against a property."

Fixed Rate
A traditional means of determining the finance charge on a loan.  The rate is determined, is applied to the principal of the loan and remains the same for the life of the loan.  Fixed rates generally apply to closed-end loans. 

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Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.

HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing.

Jumbo Loan
A loan which is larger (more than $3259,650 as of 4/27/05) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Liability on an Account
Legal responsibility to repay debt.

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Loan To Value
The ratio between the value of the collateral in which you are borrowing against and the loan amount.  Often financial institutions will set a maximum percentage for this ratio.

Loan to Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock
LenderĂ­s guarantee that the mortgage rate quoted will be good for a specific number of days from day of application.

Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Member
Term for credit union customer or share holder. When you open an account with a credit union, you purchase a share in the organization and become a member.  No member can hold more than one share for voting purposes although one member can have more than one account.

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Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.

Negative Amortization
Repayment schedule calling for periodic payments that are insufficient to fully amortize the loan. Earned but unpaid interest is added to the principal, increasing the debt. Eventually, payments must be rescheduled to fully pay off the debt.

Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

On-Us Check
A check that is drawn on a MIDFLORIDA account that is cashed or deposited at a MIDFLORIDA branch.

Open-end Credit
A line of credit that may be used repeatedly up to a certain limit, also called a charge account or revolving credit.

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Open-end Lease
A lease that may involve a balloon payment based on the value of the property when it is returned. (Also called finance lease.)

Origination Fee
A fee, often a percentage of the total principal of the loan, charged by a lender to a borrower on initiation of their loan.

Overdraft
The option to have your checking account associated with another savings account of line of credit that allows a person to write checks for more than the actual balance in the account by automatically transferring funds to cover the item.  A fee is often associated with when this service is used.

Points (loan discount points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Pre-approval
The process of determining how much money you will be eligible to borrow before you apply for a loan.

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Principal, Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.

Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan's structure.

Qualifying Ratios
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

Recission
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Service Charge
A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

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Share Account
A savings account with a credit union.  Opening a share account (or purchasing a share) is usually a nominal.  The par value of your share ($5) is held in your account and is inaccessible to you until you close your account.  A share account is required as a base on which to add additional products such as a checking account or loan.

Share Draft Account
A checking account with a credit union. 

Statement
A monthly or quarterly reporting of the activity on an account.  Checking accounts receive statements monthly.  Savings accounts that do not have regular activity receive statement quarterly.

Statement Date
The date on which a statement is generated.

Surcharge
An extra fee charged at some ATM machines when a non-proprietary card is used to access funds or transactions.

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Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

Title
A document that gives evidence of an individual's ownership of property.

Title Insurance
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.

Variable Rate
A variable rate agreement, as distinguished from a fixed rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary.

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