Washington State Department of Financial Institutions

Glossary of Terms

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203(b) - FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.

203(k) - this FHA mortgage insurance program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.

Acceleration Clause - provision allowing the lender to ask for full payment at once, if loan installations are not paid when due.

Accrued Interest - interest that is due, on a bond for example, but that hasn’t yet been paid.

Actual Cash Value - an amount equal to the replacement value of damaged property minus depreciation.

Adjustable Rate Mortgage (ARM) - a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly payment amount, however, is usually subject to a Cap.

Adjustment Period - the time between interest rate adjustment dates for an ARM. They are usually the initial period between the time the ARM is originated and the first interest rate change date, and subsequent adjustment periods between each interest rate change after the first interest rate change.

Adverse action - (1) refusal to grant credit in the amount or under the terms requested, or (2) termination of an account, or (3) refusal to increase the amount of an existing credit line when the applicant requested it in accordance with the creditor's procedures, or (4) an unfavorable change in terms that affects only some of the debtors.

Advice - the credit union's written acknowledgment to its members of a debit or credit transaction affecting that member's account

Amenity - a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, Woods, water) or man-made (like a swimming pool or garden).

Amortization Schedule - a table showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment is made.

Amortization - a term used to describe the process of paying off a loan over a predetermined period of time at a specific interest rate. The amortization of a loan includes payment of interest and a portion of the outstanding principal balance during each payment cycle.

Amount Financed - the amount of credit provided to or on behalf of the borrower, calculated under the Truth in Lending Act. This is the principal minus certain loan charges that the Truth in Lending Act defines as finance charges.

Annual Percentage Rate (APR) - calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.

Annual Report - a formal financial statement issued yearly by a corporation which shows assets, liabilities, revenues, expenses and earnings.

Application Fee - the fee that a mortgage lender charges to apply for a mortgage to cover processing costs.

Application - the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal Fee - charge for estimating the value of collateral being offered as security.

Appraisal - a document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser - a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Appreciation - an increase in the market value of a home due to changing market conditions and/or home improvements.

Arbitration - a process where disputes are settled by referring them to an impartial third party (arbitrator) chosen by the disputing parties who agree in advance to abide by the decision of the arbitrator. There is a hearing where both parties have an opportunity to be heard, after which the arbitrator issues the decision.

Asbestos - a toxic material that was once used to make insulation and fireproofing material in houses. Because some forms of asbestos have been linked to certain lung diseases, it is no longer used in new homes. However, some older homes may still have asbestos in these materials.

Assessor - a government official who is responsible for determining the value of a property for the purpose of taxation.

Asset - anything owned by an individual, a business, or a credit union which has commercial or exchange value.

Assumable Mortgage - a mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.

Assumption - a homebuyer's agreement to take on the primary liability for paying an existing mortgage from a home seller.

Audit - an official investigation to verify that all assets, liabilities, income and expenses of a financial institution are correctly stated. The audit of an institution's operation also serves to inhibit fraud and errors, and determines the accuracy of accounting and bookkeeping procedures.

Automated Teller Machine (ATM) - equipment used by a member to obtain financial services, generally activated by a plastic card, pushbuttons and a personal identification number for each user.

Automatic Clearing House (ACH) - a computer-based facility that settles payments and deposit transactions between member financial institutions.

Automatic Funds Transfer - a procedure that allows the transfer of funds from one account to another. SECU has special forms that members can complete which authorize the credit union to have funds automatically transferred to the member's SECU accounts from another financial institution.

Average Daily Balance - a method used to determine interest on a loan balance. Purchases and advances for the month are added to the outstanding balance, then credits are subtracted. The result is divided by the number of days in the month.