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GLOSSARY OF TERMS Explore the meanings of common banking terms.


The repayment of all or a specified portion of the principal of a loan in periodic installments made during the term of the loan. Most home mortgage loans made by associations are fully amortized, with the principal installments calculated in such a way that the borrower’s monthly payment of principal and accrued interest remains level over the life of the loan.

Annual Statement
(1) An association’s report to its savers and borrowers of its financial activity during the preceding 12 month period.
(2) A yearly report sent to a borrower showing all activity on his loan account, including escrow items, during the preceding 12- month period.

An estimate of the worth of a piece of property; especially, an estimate of the market value of a piece of real estate by a competent party having knowledge of real estate prices and markets.

Appraisal Report
A written report setting forth an appraiser’s estimate of the market value of a piece of real property. The standard appraisal report includes a statement of the purpose for which the value estimate is being made; a description of the subject property and property rights; a review of the appraisal process leading to the final estimate of value; and the date of the estimate.

APR (Annual Percentage Rate)
The total annualized cost of a loan, including the interest rate, fees, and any additional costs you are charged. When you borrow money, whether it’s via a credit card, car loan, or other loan, the lender is required to disclose the APR, so you understand the full cost of borrowing the money.

Blanket Mortgage
A mortgage that covers two or more properties.

Cashier’s Check
A check drawn by a bank on itself, signed by a cashier or other authorized bank officer, and payable to a third party named by a customer making the withdrawal.

Certificates of Deposit
Evidence of a deposit with a bank or a savings association; bank certificates carry no stockholder’s liability and no voting rights. Savings association certificates in mutual associations carry membership duties and privileges. Sometimes referred to as “CDs.”

Certified Check
A check on which the drawee bank has certified that the maker’s signature is genuine and that funds are and will continue to be available for its payment.

Something of value pledged by or on behalf of a borrower to secure his or her loan; if he or she defaults, the lender’s claim to the collateral is exercised to satisfy the debt.

An advance agreement to perform in the future such as by an association to provide funds for a mortgage loan.

Construction Contract
An agreement between the owner of a proposed home and the building contractor, stating the rights and responsibilities of each.

Construction Loan
A mortgage loan that finances the construction of a building, secured by a pledge of the proposed structure and the land on which it will be built; disbursements are made in stages as the construction progresses.

Construction Loan Agreement
A document, executed by the borrower, lender, and contractor with respect to a construction loan, that defines the amount of funds for construction, describes their permitted uses and the payout procedure, and provides for completion of construction in accordance with approved plans and specifications; also called a building and loan agreement.

An agreement between two or more parties that is enforceable by law; may be expressed, implied, written, or oral.

Conventional Loan
A mortgage loan made by a savings association without FHA insurance or VA guarantee; called a conventional loan because it conforms to accepted standards, modified within legal bounds by mutual consent of the borrower and the lender.

An individual or entity that signs a legal document on an equal basis with the signer. On a promissory note, all cosigners are individually and jointly liable for repayment of the full debt.

Credit Life Insurance
Insurance on the life of a borrower that pays off a specified debt if he dies; also called mortgage life insurance.

A written agreement in proper legal form which conveys title to or an interest in realty.

Deed of Trust
A legal document, used in some states, that conveys title to real estate to a disinterested third party, who holds title until the owner of the property has repaid the debt; accomplishes essentially the same purpose as a regular mortgage. Also called trust indenture or trust deed.

In real estate, ownership interest in a property. On a new mortgage loan, the borrower’s down payment represents his equity in the property.

Escrow Account
An account, held by the association, to which a borrower pays monthly installments for property taxes, insurance, and special assessments, and from which the association disburses these sums as they become due. Also called reserve, impoundment, or trust account.

Grace Period
A specified period after the regular due date of a loan payment during which no late charge or other penalty is assessed.

Hazard Insurance
A form of insurance coverage for real estate that includes protection against loss from fire, certain natural causes, vandalism, and malicious mischief.

Homeowner’s Insurance
A broad form of insurance coverage for real estate that combines hazard insurance with personal liability protection and other items.

A contract whereby the beneficiary is compensated in case of loss to a security property; included are fire and extended coverage, homeowner’s policy, flood insurance, and other special coverages.

A payment for the use of money, such as the payment an association makes to a saver for the use of his funds; or the payment a borrower makes to an association for the use of its loan funds.

Judgment Lien
A charge against the real or personal property of the judgment debtor that arises by virtue of a judgment by a state or federal court.

Late Charge
A penalty imposed by the lender, as specified in the debt instrument, for delinquent repayments.

A claim that one person or organization has upon the property of another as security for the payment of a debt or charge.

Loan Application
A formal request to a savings association or other lending institution by a prospective borrower for an advance of funds; also, the form on which pertinent data about the request is recorded.

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 Proceeds
The net amount of funds that the savings association disburses from the borrower’s loan account.

Loan Processing
All the steps taken by the association from the time a loan application is received to the time it is approved, including application-taking, credit investigation, evaluation of the loan terms, and other steps.

Loan Servicing
All the steps taken to maintain a loan, from the time it is made until the last payment is received and the loan instruments are canceled.

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.

Loans in Process
Loans on which the association has made a definite commitment but has not disbursed the entire loan proceeds.

Loans-in-Process Account
An accounting category representing funds remaining to be disbursed on mortgage loans that have been closed.

Loan Term
The time period granted for repayment of a loan.

Loan-to-Value Ratio
The ratio, usually expressed as a percentage, which the principal amount of a mortgage loan bears to the mortgaged property’s appraised value.

Market Value
The highest price in terms of money which a property will bring in a competitive and open market under all conditions requisite to a fair sale. Under such conditions the buyer and seller are each acting prudently and knowledgeably, and the assumption is that the price is not affected by undue stimulus.

Mechanic’s Lien
A lien, created by statute in most states, in favor of persons who have performed work or furnished material used in the construction of a building or other improvement; also called a materialmen’s lien.

Modification Agreement
Any agreement between the association and borrower that permanently alters one or more of the terms, e.g., interest rate, number of years allowed for repayment, monthly payment amount, and the like, of an existing mortgage loan.

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.

The institution, group, or individual that lends money on the security of pledged real estate; commonly called the lender.

The owner of real estate who pledges his property as security for the repayment of a debt; commonly called the borrower.

Partial Release
An association’s relinquishment of its claim to some part of the real property that secures a mortgage loan.

Penalty Clause
(1) A clause in a promissory note specifying a penalty for late payments. (2) A clause in a savings certificate specifying a penalty for premature withdrawal from such an account.

A loan repayment made in advance of its contractual due date.

The capital sum of a loan, as distinguished from interest or charges.

Private Mortgage Insurance
Insurance offered by a private company that protects an association against loss up to policy limits (customarily 20% to 25% of the loan amount) on a defaulted mortgage loan. Its use usually is limited to loans with a high loan-to-value ratio; the borrower pays the premiums.

Promissory Note
A written promise to pay a stipulated sum of money to a specified party under mutually agreed-upon conditions. Also called a note, promise, or bond.

Quitclaim Deed
A deed by which the owner of real estate conveys to another entity or person whatever title or interest he has to a property, but which makes no representation that the property is free from encumbrances except those created by the owner.

Real Estate
A parcel of land and any building or other objects permanently affixed to it. Same as real property in some states.

The changing of a loan from one financial institution to another or the rewriting of the terms of a loan contract within the same institution.

Regular Lending Area
The geographical boundaries within which a security property must be located in order for a savings association to invest in a mortgage loan secured by the property, without the loan and the association being subject to special limitations set by regulatory and supervisory agencies; also called normal lending territory.

The discharge of property from a mortgage lien; a written statement that an obligation has been satisfied.

Right of Rescission
Under the provisions of truth-in-lending, the borrower’s statutory right, on certain kinds of loans, to change his mind and to rescind the transaction during a three-day waiting period.

Single -Family Dwelling

A housing unit designed for ownership and occupancy by one individual or family.

Tax Lien
A government claim against real property for unpaid taxes.

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.

The popular name for the Consumer Credit Protection Act of 1968 and its provisions that require lenders to make certain disclosure of financing costs to the borrower.

In mortgage lending, the process of determining the risks inherent in a particular loan and establishing suitable terms and conditions for the loan. More generally, the establishment of sound principles and procedures for various kinds of loans.

Variable Rate Mortgage
A type of mortgage under which the interest rate charged may vary according to an index, such as the bank prime rate; the borrower ordinarily must be notified of any upward or downward change. An increase in the rate may mean either an increase in the monthly payment or extension of the mortgage term. The borrower ordinarily has the option to prepay the loan without penalty before the rate becomes effective.

Warranty Deed
A deed in which the seller warrants that the title to real estate is good and merchantable.