Financial Glossary

Financial jargon can be quite overwhelming. Words that you've known all your life suddenly make no sense whatsoever in the context of finance. Some of them you may have even seen right here on this website. So we've taken the time to compile a list of terms that every member should know more about. Of course, if you still have questions, don't hesitate to pick up the phone. The representatives at our Call Center know all about this stuff and would be more than happy to explain it to you.

A

Automated Clearing House (ACH)

Electronic transaction to/from any of your accounts

Adjustable Mortgage Loans (ARM)

A mortgage loan or deed of trust, which allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed to at the inception of the loan.

Annual Percentage Rate (APR)

Sometimes also called the interest rate. The yearly interest rate or percentage that one pays on an outstanding balance in the form of interest.

Amortization

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

Amortization Schedule

The schedule of payments for paying off a loan.

Appraisal

A professional opinion of an asset's market value as of a specific date.

B

Balance Transfer

The process of moving an unpaid credit card balance from one issuer to another.

C

Closing

On a home purchase, the process of transferring ownership from the seller to the buyer, the disbursement of funds from the buyer and the lender to the seller, and the execution of all the documents associated with the sale and the loan.

Collateral

Also referred to as security. Property that is offered to secure a loan or other credit and that becomes subject to seizure on default.

Compound Interest

Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods.

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.

Credit Union

A financial cooperative organizations of individuals with a common affiliation (such as employment, labor union membership, or place of residence). Credit unions accept deposits of members, pay interest (dividends) on them out of earnings, and primarily provide consumer installment credit to members.

Credit History

A record of how a person or company has borrowed and repaid debts, used as a guide to determine whether the consumer is likely to pay accounts on time in the future.

Credit Score

A single numerical score, based on an individual's credit history, that measures that individual's credit worthiness.

D

Deed

A document signed by the seller which transfers ownership in the property to the buyer.

Default

Failure to meet the terms of a credit agreement.

Discount Points

Amount payable to the lending institution by the borrower or seller to increase the lender's effective yield. The more discount paid results to a lower interest rate; the less discount points paid results to a higher interest rate.

Dividend

A share of earnings distributed to shareholders of a credit union

Down Payment

The difference between the selling price of the property and the loan amount, expressed in dollars, or as a percentage of the price. For example, if the house sells for $100,000 and the loan is for $80,000, the down payment is $20,000 or 20%.

E

Electronic Funds Transfer (EFT)

Electronic Funds Transfers are electronically initiated transfers of money from your account through the electronic funds transfer services described in IFCU's atm check card agreement.

Electronic Signatures (E-Signatures)

The term 'electronic signature' means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record (U.S. E-Sign Act—Section 106). However, for such an electronic "symbol" to be legally binding, it is important that the symbol provide authentication of the party who created it, ensure that what was signed cannot be altered, ensure that the party understood that by creating the symbol the party was willingly signing, and that the party is able to keep an original of the data and his/her electronic signature for his/her own records. Electronic signatures are legally recognized, even when a statute uses terms like "in writing" or "signed."

Escrow

Money, documents, real estate or securities deposited with a neutral third party (the escrow agent) and then disbursed upon fulfillment of certain established conditions. The escrow agent's role is to protect either side of a transaction from the other side's unauthorized use of funds and to ensure an arms-length transaction between buyer and seller.

Equity

In real estate, the difference between fair market value and current indebtedness; also referred to as the owners interest.

F

FHA Loan

A loan insured by the Federal Housing Administration, a part of the Department of Housing and Urban Development. FHA insurance enables lenders to loan a very high percentage of the sale price.

Finance Charges

The price paid to a lender for the use of borrowed money. Interest is charged as a percentage of your outstanding balance (purchases and charges reduced by payments or credits posted). This percentage, or interest rate, can vary from card to card.

Fixed Rate

A set annual percentage rate (APR) that does not change in response to interest rate changes and conditions. A Variable Rate periodically goes up or down based on fluctuations in market interest rates as reflected in a published index (e.g., the prime rate published in the Wall Street Journal).

Fixed Rate Mortgage

A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage.

G

Good faith estimate

The form that lists the settlement charges the borrower must pay at closing, which the lender is obliged to provide the borrower within three business days of receiving the loan application.

H

Home Equity Loan

A fixed- or variable-rate loan, secured by a mortgage lien, that allows a homeowner to borrow against equity in their house to pay for repairs or other home improvements, refinance other debt or use for other purposes.

Hazard Insurance

Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. It is also known as "homeowner insurance."

I

Interest Rate

The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal; the rate is dependent upon the time value of money, the credit risk of the borrower and the inflation rate. Interest rates can be calculated as simple, compounded or effective.

Individual Retirement Account (IRA)

A retirement savings account for individuals. Deposits may be tax-deductible. These contributions cannot exceed specific amounts without penalties.

Interest

The amount paid for the use of money. Thus, financial institutions pay savings depositors interest for the use of the funds on deposit, and borrowers pay financial institutions interest for the use of the money advanced to them.

L

Lien

A legal claim against an asset, like a home or auto, which is used to secure a loan.

Loan-to-Value Ratio

Also known as LTV. It is the amount borrowed (loan) divided by the appraised value of the collateral. It is expressed as a percentage. The collateral value is determined by either an appraisal or recent arms-length transaction. For example, a $20,000 loan on a car that was recently appraised at $25,000 has an LTV of 80 percent.

M

Mortgage

A written document evidencing the lien on a property taken by a lender as security for the repayment of a loan. The term “mortgage” or “mortgage loan” is used loosely to refer both to the lien and the loan. In most cases, they are defined in two separate documents: a mortgage and a note.

Mortgage Insurance (MI)

Insurance which protects mortgage lenders against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments. Also known as private mortgage insurance or PMI. PITI Acronym for the items included in a monthly mortgage payment: principal, interest, taxes, and insurance.

N

Note

A document that evidences a debt and a promise to repay. A mortgage loan transaction always includes both a note evidencing the debt, and a mortgage evidencing the lien on the property, usually in two documents.

O

Overdraft

When the amount of a paid check or other withdrawal exceeds the available balance in a checking account (can result in fees).

P

PIN

Personal Identification Number. Secret code you choose for your card that enables you to access your money or perform banking transactions through the ATM as well as make purchases without signing a sales receipt at merchants that have PIN pads. Your PIN should not be shared with anyone.

PMI

Private mortage insurance (PMI) protects mortgage lenders against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments.

PITI

Acronym for the four items included in a monthly mortgage payment: principal, interest, taxes, and insurance. Principal is the loan amount. Interest is the rate at which the finance charge you pay for borrowing is calculated. Taxes are the real estate taxes for which you are responsible, and insurance is the homeowners insurance that your lender requires you to have.

Pre-Qualification

Evaluation of a potential borrower's financial status to determine the size and type of mortgage available to the borrower.

Section Title

The amount borrowed, or the part of the amount borrowed which remains unpaid (excluding interest). Also known as the part of a monthly payment that reduces the outstanding balance of a mortgage.

S

Servicing

Administering loans between the time of disbursement and the time the loan is fully paid off. This includes collecting monthly payments from the borrower, maintaining records of loan progress, assuring payments of taxes and insurance, and pursuing delinquent accounts.

T

Term

The period of time of a loan. Auto loans are generally two to fours years in duration, while home mortgage loans generally have 15- or 30-year terms.

Title

A legally binding document that establishes evidence of ownership of an asset and any liens or other claims filed against the asset. A title should be examined for any recorded liens, which "encumber" a title and make its transfer more difficult than that of an unencumbered title. An unencumbered title is also referred to as a "clean" title.

Title Insurance

Insurance against loss resulting from defects of title of public record. A title company searches court house records to insure that ownership is property transferred and existing liens are noted.

U

Underwriting

A loan review process that begins with the acceptance of a loan application and ends with a decision to either approve or deny the loan request.

V

Variable Rate

A Variable Rate periodically goes up or down based on fluctuations in market interest rates as reflected in a published index (e.g., the prime rate published in the Wall Street Journal).