Glossary

A

Adjustment period For an adjustable rate mortgage, the time between changes to the contract interest rate as dictated by changes in the index.

Annual Fee A fee paid on an annual basis typically associated with a credit card or revolving line of credit.

Annual percentage rate (APR) The cost of your credit represented as a yearly rate.

Appraisal An estimate of the market value of a piece of property.

Adjustable rate mortgage (ARM) A loan secured by real property in which the lender may adjust the interest rate from time to time, moving up or down, according to an index described in your loan agreement. Also called variable rate mortgage (VRM).

Adjustable Rate Mortgage Caps A description of the limitations set for maximum interest adjustments that may apply during the term of the mortgage loan and defined in your loan agreement Examples include periodic rate caps and lifetime rate caps.

Asset An item of value that a borrower owns.

B

Balloon payment A lump sum payment remaining at the end of the term of a loan.

Bankruptcy The legal process in which a person declares their inability to pay debts. The proceeds of all available assets are distributed to creditors. Bankruptcy stays on the borrower's credit history for up to 10 years.

C

Cash advance Loan from a credit card account provided in cash. Interest is charged from the date of the advance.

Charge card A card that allows the holder to buy goods and services and pay for them later. No interest is charged if the holder pays the entire balance every month.

Charge-off A loan or credit card debt written off as uncollectible from the borrower. The debt remains valid and subject to collection.

Checking account An account at a bank or savings and loan from which an individual can withdraw money by check, ATM card or debit card.

Closed-end loan A loan in which the borrower receives all loan proceeds in one lump sum for a specified period of time. Borrower may not draw additional funds against the loan at a later date.

Closing The process in which a loan's contract is signed and the loan is funded.

Closing cost Fees paid at the closing of a loan transaction. Costs could include an appraisal fee, title search and insurance, survey, taxes, deed, recording fee, credit report charge and other costs assessed at the time of settlement.

Collateral An asset pledged to secure payment of debt. Also defined as "security."

Combined Loan to Value ratio (CLTV) The ratio of money borrowed on a property to the property's fair market value.

Co-applicant A person who signs a loan agreement along with the borrower and assumes equal responsibility for repayment. Also called a "co-signer."

Credit application A written request for credit, generally in a form specified by the lender.

Credit bureau A company that compiles credit histories for individuals and businesses and provides them to lenders. The three major credit bureaus are Equifax, Experian and TransUnion.

Credit card A card issued by a bank that allows the holder to buy goods and services and pay for them later. If, on the due date, the holder does not pay the balance, the bank charges interest on the unpaid balance.

Credit counseling Professional counseling service that helps people learn to budget carefully, manage their money, and repay their debt.

Credit history Based on an individual's financial history and current financial situation, an assessment of that individual's ability to repay a loan.

Credit limit The maximum amount that may be charged on a revolving loan account, such as a credit card.

Credit report A record of an individual's financial history and current financial situation compiled by a credit bureau.

Credit score A number representing an estimate of an individual's creditworthiness. A common credit score used in the United States is the FICO score.

Creditor A person or business from whom you borrow, or to whom you owe, money.

D

Debit card A card issued by a bank that allows the holder to buy goods and services. Funds are deducted directly from the holder’s checking account.

Debt Money owed to another party.

Debt consolidation Used to manage debt, a strategy in which a borrower takes out a loan to pay off others. The borrower may then have one lower monthly payment that extends over time.

Default Failure to meet the terms of a loan agreement.

Delinquency Failure to make loan payments on time.

Discretionary income Individual or family after-tax income generally not required for food, housing or other basic necessities.

E

Equity The market value of a person's home or real estate, less the value of all existing real estate loans secured by the property.

F

Fair market value The price at which a property would change hands between a willing buyer and a willing seller when both parties have reasonable knowledge of relevant facts.

Finance charge The cost of credit expressed as a dollar amount.

Fixed rate An interest rate that does not change over the life of the loan. The interest rate on a fixed rate loan is set when the loan originates. The interest rate does not change when interest rates fluctuate.

Forbearance To prevent foreclosure, a temporary delay of and/or reduction in payment that helps a borrower to bring the account current.

Foreclosure When a loan is in default, a legal process in which the lender may sell the real estate pledged as collateral to collect on the loan.

G

Grace period A period in which a borrower can pay off the full balance of a credit account without incurring additional finance charges and/or late fees.

H

Hardship assistance Remedies available to borrowers who are unable to make their loan payments. Also called hardship relief.

Home equity loan A fixed rate, closed end loan that uses the borrower's home as collateral.The borrower repays the loan in equal periodic amounts.

Home equity line of credit (HELOC) A line of credit that uses the borrower's home as collateral. The borrower may borrow from the line of credit and within a certain call period.

I

Identity theft When an unauthorized party fraudulently represents themselves as another party.

Index A number used to measure changes in quantities of goods, services or levels of activity. Lenders base adjustable rate mortgage interest rates on a variety of market indices (such as LIBOR).

Installment loan A loan in which the amount of payment and the number of payments are predetermined.

Interest rate The amount a lender charges a borrower for a loan.

J

Judgment A decision made by a court related to a lawsuit.

K

L

LIBOR London InterBank Offered Rate (LIBOR). Many adjustable rate mortgages are tied to this index.

Late payment fee A fee charged for a loan payment not received by the due date or within the payment grace period.

Lender A person or business from whom one borrows or to whom one owes money. Also referred to as a creditor.

Liable Having legal responsibility.

Lien A claim placed by a creditor on a real property or other collateral (such as an auto) to secure payment of a debt.

Lifetime rate cap The maximum interest rate a lender can charge over the life of an adjustable rate mortgage loan.

Loan Money a lender loans a borrower. The borrower repays the money with interest.

Loan agreement A contract that spells out the terms and conditions of a loan.

Loan origination fee The lender's service charge for originating a loan.

M

Margin The amount added to the index to determine the interest rate of an adjustable rate mortgage loan. Margins, which are calculated as percentage points, can differ from one lender to another. Beneficial’s margins are fixed throughout the life of the loan.

Maturity date The date on which final payment of a loan is due.

Minimum payment The smallest amount a borrower must pay each month on a loan or credit card account.

Mortgage loan A loan used for the purchase of a home. The home is the collateral for the loan.

N

O

Origination fee A fee charged by a lender for a loan.

P

Payoff The complete repayment of a loan, including interest and any fees, either over the full term of the loan or through prepayment.

Pay Right Rewards A program offered by Beneficial where rate reductions occur once every year for either 10 or 12 years, depending on state, as long as payments are made on time. The maximum rate reduction ranges from 2 percent to 4 percent, depending on the Pay Right Rewards program you qualify for, based on your credit qualifications. Program is currently offered on home equity and mortgage refinance loans.

Periodic rate cap The maximum amount an interest rate can increase or decrease from one adjustment period to the next on an adjustable rate mortgage.

Personal line of credit A revolving line of credit extended to a borrower without collateral.

Points Fees paid by the borrower at the beginning of a loan. One point is equal to 1 percent of the loan. For example, for a $100,000 loan, one point would equal $1,000.

Prepayment penalty A fee a lender might charge if a borrower pays off all or part of a loan before the loan is due or before a date defined by the lender.

Principal The amount of the original loan or the amount that remains unpaid.

Private mortgage insurance (PMI) Insurance from nongovernmental providers that protects lenders against loss when borrowers default on their mortgages.

Public record Information obtained from local, state or federal courts about an individual's history, including that individual's payment of alimony, child support and other financial obligations.

Q

R

Refinance To pay off an existing loan with the proceeds from a new loan.

Repossess Forced or voluntary surrender of merchandise resulting from a borrower's failure to repay a loan.

Revolving line of credit An agreement to lend a specific amount to a borrower for a specific amount of time (call period). The lender allows reborrowing of funds as the borrower continues to pay down their outstanding loan balance. Also called revolving credit.

Right of rescission A borrower's right to cancel certain real estate loans within three business days.

S

Savings account An interest-bearing account at a bank or savings and loan. Usually not used for frequent withdrawals.

Savings bond A government bond that earns tax-free interest.

Secured loan A loan for which a borrower pledges an asset, such as a home or car, which the lender could sell if the borrower is unable to repay the loan.

Security See "collateral."

Simple interest Interest calculated on a principal sum, not compounded on earned interest.

T

Term The period from the issue date of the loan to the final payment.

Title A legal document that provides evidence of property ownership.

Title insurance Insurance that protects both lender and borrower against loss in the event of a property ownership dispute.

Title search The process of examining all records to confirm that the seller is the legal owner of a property and that there are no liens or other outstanding claims against that property.

U

Unsecured loan A loan obtained without collateral.

V

Variable interest rate An interest rate that moves up or down according to an index, such as the prime rate. Also called an adjustable rate.

W

X

Y

Z