Dictionary (H-Z)

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

H

Hold: Used to indicate that a certain amount of a customer's balance may not be withdrawn until an item has been collected, or until a specific check or debit is posted.

Home Equity Line of Credit (HELOC): A line of credit secured by the equity in a consumer's home. It can be used for home improvements, debt consolidation, and other major purchases. Interest paid on the loan is generally tax deductible (consult a tax advisor to be sure). The funds may be accessed by writing checks against the line of credit or by getting a cash advance.

Home Equity Loan: A home equity loan allows you to tap into your home's built-up equity, which is the difference between the amount that your home could be sold for and the amount that you still owe.

Homeowners often use a home-equity loan for home improvements, to pay for a new car, or to finance their child's college education. The interest paid is usually tax-deductible.

Because the loan is secured by your home's equity, if you default, the bank may foreclose on your house and take ownership of it.

This type of loan is sometimes referred to as a second mortgage or borrowing against your home.

I

Inactive account: An account that has little or no activity; neither deposits nor withdrawals having been posted to the account for a significant period of time.

Individual account: An account in the name of one individual.

Individual retirement account (IRA): A retirement savings program for individuals to which yearly tax-deductible contributions up to a specified limit can be made. The amount contributed is not taxed until withdrawn. Withdrawal is not permitted without penalty until the individual reaches age 59 1/2.

Insufficient funds: When a depositor's checking account balance is inadequate to pay a check presented for payment.

Insurance (hazard): Insurance to protect the homeowner and the lender against physical damage to a property from sources such as but not limited to fire, wind, or vandalism.

Insured deposits: Deposits held in financial institutions that are guaranteed by the Federal Deposit Insurance Corporation (FDIC) against loss due to bank failure.

Interest: The term interest is used to describe the cost of using money, a right, share, or title in property.

Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures.

Interest rate index: A table of yields or interest rates being paid on debt that is used to determine interest-rate changes for adjustable-rate mortgages and other variable-rate loans.

J

Joint account: An account owned by two or more persons. Either party can conduct transactions separately or together as set forth in the deposit account contract.

K

Kiting: Writing a check in an amount that will overdraw the account but making up the deficiency by depositing another check on another bank. For example, mailing a check for the mortgage when your checking account has insufficient funds to cover the check, but counting on receiving and depositing your paycheck before the mortgage company presents the check for payment.

L

Late charge: The fee charged for delinquent payment on an installment loan, usually expressed as a percentage of the loan balance or payment. Also, a penalty imposed by a card issuer against a cardholder's account for failing to make minimum payments.

Lease: A contract transferring the use of property or occupancy of land, space, structures, or equipment in consideration of a payment (e.g., rent).

Lender: An individual or financial institution that lends money with the expectation that the money will be returned with interest.

Lien: Legal claim against a property. Once the property is sold, the lien holder is then paid the amount that is owed.

Line of credit: A pre-approved loan authorization with a specific borrowing limit based on creditworthiness. A line of credit allows borrowers to obtain a number of loans without re-applying each time as long as the total of borrowed funds does not exceed the credit limit.

Loan-to-value ratio (LTV): The ratio of the loan principal (amount borrowed) to the appraised value (selling price). For example, on a $100,000 home, with a mortgage loan principal of $80,000, the loan-to-value ratio is 80 percent. The LTV will affect programs available to the borrower; generally, the lower the LTV, the more favorable the program terms offered by lenders.

Loan contract: The written agreement between a borrower and a lender in which the terms and conditions of the loan are set.

Loan fee: A fee charged by a lender to make a loan (in addition to the interest charged to the borrower).

Loan modification provision: A contractual agreement in a loan that allows the borrower or lender to permanently change one or more of the terms of the original contract.

Loan proceeds: The net amount of funds that a lending institution disburses under the terms of a loan, and which the borrower then owes.

Local check: A check payable by, at, or through a bank in the same check processing region as the location of the branch of the depository bank. (The depository bank is the bank into which the check was deposited.) Any check that does not qualify as a local check is by definition a nonlocal check.

M

Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Media: Any organization in the business of informing the public with news or commentary. The various forms of media include print, television, internet, and radio.

Minimum balance: The amount of money required to be on deposit in an account to qualify the depositor for special services or to waive a service charge.

Minimum payment: The minimum dollar amount that must be paid each month on a loan, line of credit, or other debt.

Missing payment: A payment that has been made but not credited to the appropriate account.

Money market deposit account: A savings account that offers a higher rate of interest in exchange for larger than normal deposits. Insured by the FDIC, these accounts have limits on the number of transactions allowed and may require higher balances to receive the higher rate of interest.

Money market fund: An open-ended mutual fund that invests in short-term debts and monetary instruments such as Treasury bills and pays money market rates of interest. Money market funds usually offer checkwriting privileges. They are not insured by the FDIC.

Mortgage: A debt instrument used in a real estate transaction where the property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to pay off the loan.

Mortgage loan: A loan made by a lender to a borrower for the financing of real property.

Mortgagee: The lender in a mortgage loan relationship.

Mortgagor: The borrower in a mortgage loan relationship. (Property is used as collateral to make payment.)

Mutual Fund: A fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities, or money market securities. These funds offer investors the advantages of diversification and professional management. To participate, the investor may pay fees and expenses. (Mutual funds are not covered by FDIC insurance.)

N

National Bank: A bank that is subject to the supervision of the Comptroller of the Currency. The Office of the Comptroller of the Currency is a bureau of the U.S. Treasury Department. A national bank can be recognized because it must have "national" or "national association" in its name.

National Bank Examiner: An employee of the Comptroller of the Currency whose function is to examine national banks periodically to determine the financial position of a bank and the security of its deposits. The examiner also verifies that the bank maintains procedures consistent with Federal banking laws and regulations.

National Credit Union Administration (NCUA): The Federal regulatory agency that charters and supervises Federal credit unions. (NCUA also administers the National Credit Union Share Insurance Fund, which insures the deposits of Federal credit unions.)

Negotiable Order of Withdrawal Account (NOW): A savings account from which withdrawals can be made by negotiable orders of withdrawal (functional equivalent of checks). This is an interest-bearing account for which the bank must reserve the right to require the depositor to provide at least seven days notice of his/her intent to withdraw funds.

O

Official check: A check drawn on a bank and signed by an authorized bank official. (Also known as a cashier's check.)

Offset, right of: Banks' legal right to seize funds that a guarantor or debtor may have on deposit to cover a loan in default. It is also known as right of setoff.

Online banking: A service that allows an account holder to obtain account information and manage certain banking transactions through a personal computer via the financial institution's web site on the Internet. (This is also known as Internet or electronic banking.)

Open-end credit: A credit agreement (typically a credit card) that allows a customer to borrow against a preapproved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due. (Also called a charge account or revolving credit.)

Operating Subsidiary: National banks conduct some of their banking activities through companies called operating subsidiaries. These subsidiaries are companies that are owned or controlled by a national bank and that, among other things, offer banking products and services such as loans, mortgages, and leases.

The Office of the Comptroller of the Currency supervises and regulates the activities of many of these operating subsidiaries.

Outstanding check: A check written by a depositor that has not yet been presented for payment to or paid by the depositor's bank.

Overdraft: When the amount of money withdrawn from a bank account is greater than the amount actually available in the account, the excess is known as an overdraft, and the account is said to be overdrawn.

Overdraw: To write a check for an amount that exceeds the amount on deposit in the account.

Overlimit: An open-end credit account in which the assigned dollar limit has been exceeded.

P

Passbook: A book in ledger form in which are recorded all deposits, withdrawals, and earnings of a customer's savings account.

Past-due item: Any note or other time instrument of indebtedness that has not been paid on the due date.

Payday Loans: A small-dollar, short-term loan that a borrower promises to repay out of their next paycheck or deposit of funds.

Payee: The person or organization to whom a check, draft, or note is made payable.

Paying (payor) bank: A bank upon which a check is drawn and that pays a check or other draft.

Payment due date: The date on which a loan or installment payment is due. It is set by a financial institution. Any payment received after this date is considered late; fees and penalties can be assessed.

Payoff: The complete repayment of a loan, including principal, interest, and any other amounts due. Payoff occurs either over the full term of the loan or through prepayments.

Payoff statement: A formal statement prepared when a loan payoff is contemplated. It shows the current status of the loan account, all sums due, and the daily rate of interest.

Payor: The person or organization who pays.

Periodic rate: The interest rate described in relation to a specific amount of time. The monthly periodic rate, for example, is the cost of credit per month; the daily periodic rate is the cost of credit per day.

Periodic statement: The billing summary produced and mailed at specified intervals, usually monthly.

Personal Identification Number (PIN): Generally a four-character number or word, the PIN is the secret code given to credit or debit cardholders enabling them to access their accounts. The code is either randomly assigned by the bank or selected by the customer. It is intended to prevent unauthorized use of the card while accessing a financial service terminal.

PITI: Common acronym for principal, interest, taxes, and insurance—used when describing the monthly charges on a mortgage.

Point of sale (POS): 1) The location at which a transaction takes place. 2) Systems that allow bank customers to effect transfers of funds from their deposit accounts and other financial transactions at retail establishments.

Power of attorney: A written instrument which authorizes one person to act as another's agent or attorney. The power of attorney may be for a definite, specific act, or it may be general in nature. The terms of the written power of attorney may specify when it will expire. If not, the power of attorney usually expires when the person granting it dies.

Some institutions require that you use the bank's power of attorney forms. (The bank may refer to this as a Durable Power of Attorney: The principal grants specific rights to the agent.)

Pre-payment: The payment of a debt before it actually becomes due.

Preauthorized electronic fund transfers: An EFT authorized in advance to recur at substantially regular intervals.

Preauthorized payment: A system established by a written agreement under which a financial institution is authorized by the customer to debit the customer's account in order to pay bills or make loan payments.

Prepayment clause: A clause in a mortgage allowing the mortgagor to pay off part or all of the unpaid debt before it becomes due.

Prepayment penalty: A penalty imposed on a borrower for repaying the loan before its due date. (In the case of a mortgage, this applies when there is not a prepayment clause in the mortgage note to offset the penalty.)

Previous balance: The cardholder's account balance as of the previous billing statement.

Principal balance: The outstanding balance on a loan, excluding interest and fees.

Private Mortgage Insurance (PMI): Insurance offered by a private insurance company that protects the bank against loss on a defaulted mortgage up to the limit of the policy (usually 20 to 25 percent of the loan amount). PMI is usually limited to loans with a high loan-to-value (LTV) ratio. The borrower pays the premium.

R

Real Estate Settlement Procedures Act (RESPA): Federal law that, among other things, requires lenders to provide "good faith" estimates of settlement costs and make other disclosures regarding the mortgage loan. RESPA also limits the amount of funds held in escrow for real estate taxes and insurance.

Reconciliation: The process of analyzing two related records and, if differences exist between them, finding the cause and bringing the two records into agreement. Example: Comparing an up-to-date check book with a monthly statement from the financial institution holding the account.

Redlining: The alleged practice of certain lending institutions of not making mortgage, home improvement, and small business loans in certain neighborhoods-usually areas that are deteriorating or considered by the lender to be poor investments.

Refinancing: A way of obtaining a better interest rate, lower monthly payments, or borrow cash on the equity in a property that has built up on a loan. A second loan is taken out to pay off the first, higher-rate loan.

Refund: An amount paid back because of an overpayment or because of the return of an item previously sold.

Release of lien: To free a piece of real estate from a mortgage.

Renewal: A form of extending an unpaid loan in which the borrower's remaining unpaid loan balance is carried over (renewed) into a new loan at the beginning of the next financing period.

Residual interest: Interest that continues to accrue on your credit card balance from the statement cycle date until the bank receives your payment.

For example, if your statement cycle date was January 10 and the bank received your payment on January 20, there were ten days for which interest accrued. This amount will be posted on your next statement.

Return item: A negotiable instrument—principally a check—that has been sent to one bank for collection and payment and is returned unpaid by the sending bank.

Revolving credit: A credit agreement (typically a credit card) that allows a customer to borrow against a preapproved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due. (Also called a charge account or open-end credit.)

Right of offset: Banks' legal right to seize funds that a guarantor or debtor may have on deposit to cover a loan in default. It is also known as the right of set-off.

Right of rescission: Right to cancel, within three business days, a contract that uses the home of a person as collateral, except in the case of a first mortgage loan. There is no fee to the borrower, who receives a full refund of all fees paid. The right of rescission is guaranteed by the Truth in Lending Act (TILA).

S

Safe (or safety) deposit box: A type of safe usually located in groups inside a bank vault and rented to customers for their use in storing valuable items.

Safekeeping: A service provided by banks where securities and valuables are protected in the vaults of the bank for customers.

Satisfaction of mortgage: A document issued by a mortgagee (the lender) when a mortgage is paid in full.

Service charge: A charge assessed by a depository institution for processing transactions and maintaining accounts.

Signature card: A card signed by each depositor and customer of a bank which may be used as a means of identification. The signature card represents a contract between the bank and the depositor.

Special Flood Hazard Area (SFHA): An area defined on a Flood Insurance Rate Map with an associated risk of flooding.

Stale-dated check: Presented to the paying bank 180 days (6 months) or more after the original issue date. Banks are not required by the Uniform Commercial Code to honor stale-dated checks and can return them to the issuing bank unpaid. The maker of a check can discourage late presentment by writing the words "not good after X days" on the back of the check.

State bank: A bank that is organized under the laws of a State and chartered by that State to conduct the business of banking.

State Banking Department: The organization in each State that supervises the operations and affairs of State banks.

Statement: A summary of all transactions that occurred over the preceding month and could be associated with a deposit account or a credit card account.

Stop payment: An order not to pay a check that has been issued but not yet cashed. If requested soon enough, the check will not be debited from the payer's account. Most banks charge a fee for this service.

Student loan: Loans made, insured, or guaranteed under any program authorized by the Higher Education Act. Loan funds are used by the borrower for education purposes.

Substitute check: A substitute check is a paper copy of the front and back of the original check. A substitute check is slightly larger than a standard personal check so that it can contain a picture of your original check.

A substitute check is legally the same as the original check if it accurately represents the information on the original check and includes the following statement: "This is a legal copy of your check. You can use it the same way you would use the original check." The substitute check must also have been handled by a bank.

Substitute checks were created under Check 21, the Check Clearing for the 21st Century Act, which became effective on October 28, 2004.

T

Terms: The period of time and the interest rate arranged between creditor and debtor to repay a loan.

Time certificate of deposit: A time deposit evidenced by a negotiable or nonnegotiable instrument specifying an amount and maturity.

Time deposit: A time deposit (also known as a term deposit) is a money deposit at a bank that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn, or it can be held for another term. The longer the term, the better the yield on the money. Generally, there are significant penalties for early withdrawal.

Truth in Lending Act (TILA): The Truth in Lending Act is a Federal law that requires lenders to provide standardized information so that borrowers can compare loan terms. In general, lenders must provide information on

Trust account: A general term that covers all types of accounts in a trust department, such as estates, guardianships, and agencies.

Trust administrator: A person or institution that manages trust accounts.

U

Uncollected funds: A portion of a deposit balance that has not yet been collected by the depository bank.

Uniform Commercial Code (UCC): A set of statutes enacted by the various States to provide consistency among the States' commercial laws. It includes negotiable instruments, sales, stock transfers, trust and warehouse receipts, and bills of lading.

Uniform Gift to Minors Account: A UGMA provides a child under the age of 18 (a minor) with a way to own investments. The money is in the minor's name, but the custodian (usually the parent) has the responsibility to handle the money in a prudent manner for the minor's benefit. The parent cannot withdraw the money to use for his or her own needs.

Usury: Charging an illegally high interest rate on a loan.

Usury rates: The maximum rate of interest lenders may charge borrowers. The usury rate is generally set by State law.

V

Variable rate: Any interest rate or dividend that changes on a periodic basis.

W

Wire transfer: A transfer of funds from one point to another by wire or network such the Federal Reserve Wire Network (also known as FedWire).







Copyright 2007 by Mark McCracken , All Rights Reserved