Banking Glossary

Amortization

The gradual reduction of a loan or other obligation by making periodic payments of principle and interest.

Appraisal

A professional evaluation of the market value of an asset.

Asset

Anything owned that has commercial value.

Balloon Note

A loan repaid in regularly scheduled payments with a typically larger balance due at maturity.

Balloon Payment

The final payment paid to the bank on a balloon note.

Beacon Score

A credit score that ranges from 300 - 850 and is based on how well you have repaid your obligations.

Collateral

Specific property pledged by a borrower to secure a loan.

Co-Applicant

An individual who signs a note to guarantee a loan made to another party and is jointly liable with that party for repayment.

Community Reinvestment Act (CRA)

A law that requires banks and other financial institutions to meet the credit needs of their communities including low and moderate income sections of the community. The act also requires banks to submit reports concerning their investments in the areas where they do business.

Consumer Credit

The general term for loans extended to individuals usually on an unsecured basis and providing for monthly repayment. Installment loans and personal loans are also referred to as consumer credit (unless the loan is used for business purposes or to purchase commercial property).

Cosigner

An individual, corporation, or partnership that becomes a contractual obligor of the Bank by signing loan documents, including the note, with the applicant. A co signer is usually not the primary recipient of the loan proceeds.

Counter Offer

A status of a credit request that results when a lender does not approve credit under the originally requested terms. The lender requires some other action by the applicant such as accepting a lesser dollar amount on the loan, arranging for a co signer or guarantor, or the presentation of additional collateral.

Credit Life and Disability Insurance

A contract binding an insurance company to pay the principal plus interest on a loan in the event of the insured's death or insurance to make payments in the event of disability. This insurance is offered to applicants on most loans but is not a requirement to obtain a loan. Credit life and disability is not offered on the Personal Line of Credit and there are maximum benefits associated with the coverage.

Credit Limit

The total dollar amount that can be advanced to a client under the terms of a loan agreement. Actual outstanding can be below this limit but should never be higher.

Credit Line

An amount set-aside by a bank to be available for a client to draw down by check or other means on one or more occasions up to the credit limit on the account. (Also known as revolving credit.)

Debt Consolidation

Using the proceeds of a new loan to pay off one or more existing loans. Usually done when the client has trouble meeting their existing obligations and is able to lower their monthly payment with another more favorable loan.

Debt-to-Income Ratio

Ratio (percentage) that compares an individual's current monthly debt service requirements, plus the payment of the new loan requested to the individual's gross income. This ratio is used to evaluate an applicant's ability to repay a requested debt.

Default

The failure of a borrower to make a payment of principle and/or interest when due as required by the loan agreement with the creditor.

Demand Loan

A loan with no fixed maturity, payable whenever the bank calls for it or at the borrower's option.

Equal Credit Opportunity Act

Legislation passed in 1974 that requires all lenders and creditors to make credit equally available, without any type of discrimination.

Escrow

The holding of funds, documents, securities, and other property by an impartial third party for the other two participants in a business transaction. When the transaction is completed, the escrow agent releases the entrusted property.

Foreclosure

Usually refers to the repossession of real estate. The legal process required to gain possession of a house when a specified number of mortgage payments have been missed and the client has not sold the house on his own.

Grantor

The person that owns the collateral and pledges it on a loan for someone else.

Guarantor

The same authority as a co-signer but guarantor is the preferred term used in business environments.

Home Equity Loan

A type of real estate credit in which the homeowner borrows against the value of his or her residence. A home equity lien could be a 1st lien if the home is paid for, a 2nd lien if there is already a 1st mortgage, or, more uncommonly, could be a 3rd lien if the borrower has a home mortgage and home improvement loan.

Installment Loan

A loan made to an individual or business, repaid in specified fixed, periodic payments.

Interest

Money paid for the use of money.

Late Fee

A charge assessed by a creditor for payments received beyond the due date.

Line of Credit

A pre-approved amount of credit a bank is willing to lend to a borrower for future use.

Mortgage Loan

Consumer real estate credit, usually extended on a long-term basis with the mortgaged property as security.

Note

A written promise to pay a specific amount, either on demand or at a future date.

Obligor

An individual or institution bound by a legal obligation. In credit situations, usually the borrower.

Personal Property

All assets of a borrower other than real property (e.g., boats, RVs, various types of collections, etc.).

Perfection

This occurs when a security interest (collateral) is protected by taking possession or possibly registering through the appropriate agency.

Points

An up front charge paid by the borrower to the bank to cover the costs of processing and approving a request for a home mortgage. It is usually expressed as a percentage of the total loan.

Prime Rate

1. The interest rate charged to the bank's most creditworthy clients.
2. A benchmark or guideline interest rate that a bank establishes from time to time and uses in calculating an appropriate rate for a particular loan contract.
3. The interest rate a bank pays to borrow money.

Principal

1. The sum of money stated in an account, a contract, or a financial instrument, for example, the amount of a loan or debt exclusive of interest.
2. The primary borrower on a loan or obligation.
3. A person who appoints another party to act for him or her as agent.
4. The property of an estate.
5. The individual with primary ownership or management control of a business.

Private Mortgage Insurance (PMI)

Insurance provided by a private insurance company to help protect the mortgage lender against default. It is typically required only when the down payment is less than 20%.

Real Property

Property consisting of land and/or buildings attached to land.

Refinancing

To retire (pay off) existing loans by changing their terms or by making a new loan.

Second Mortgage

A second loan made by a lender on a home where a first mortgage already exists. In the event the property is repossessed or sold, the first mortgage has to be paid off before the second lender receives any funds.

Secured Loan

A secured loan is a borrower's obligation that includes the pledging of some form of collateral to protect the lender in case of default.

Single Pay Loan

One single payment due at maturity. Generally there is no principal reduction during the term. Terms are generally less than one year.

Term Loan

A loan having a maturity of more than one year.

Tiered Interest Rate

A rate that has two or more interest rate possibilities based on variable dollar amounts saved or borrowed.

Truth in Lending Laws

Federal and/or state legislation requiring that all lenders provide borrowers with full information about the terms and conditions of loans.

Underwriting

The process of reviewing, analyzing and making a decision whether to approve, disapprove, or modify a request for credit.

Unsecured Loan

An unsecured loan is bank credit extended without collateral.

Variable Rate Loan

A loan that allows the lender to make periodic adjustments in the interest rate, according to fluctuating market conditions. Also known as an adjustable rate loan.

Yield

The total amount earned by a creditor, expressed on an annual percentage basis.