Financial Terms Glossary: A B

1/1 ARM | An adjustable-rate mortgage that has a set initial interest rate for the first year. After that period, the mortgage rate adjusts each year. Each annual rate adjustment is based on (or “indexed to”) another rate, often the yield on a U.S. Treasury note. 10/1 ARM | An adjustable-rate mortgage that has a set initial interest rate for the first 10 years. After that period, the mortgage rate adjusts each year. 3/1 Interest-Only ARM | An adjustable rate mortgage in which none of the payments go toward paying off the loan principal for the first three years. 3-in-1 Credit Report | Also called a merged credit report, this type of report includes your credit data from TransUnion, Equifax and Experian in a side-by-side format for easy comparison. 80-10-10 Loan | A combination of an 80% loan-to-value first mortgage, a 10% home equity loan and a 10% down payment. The loans can be used to eliminate the need for private mortgage insurance. ACH Automated Clearing House. This is a national network that allows for transferring funds electronically between businesses, consumers and financial institutions. Adjustable Rate Mortgage (ARM) | A home loan where the interest rate is changed periodically based on a standard financial index. ARM’s offer lower initial interest rates with the risk of rates increasing in the future. In comparison, a fixed rate mortgage (FRM’s) offers a higher rate that will not change for the length of the loan. ARMs often have caps on how much the interest rate can rise or fall. Alternative Mortgage | Any home loan that is not a standard fixed-rate mortgage. This includes ARM’s, reverse mortgages and jumbo mortgages. Alias A note on your credit report that indicates other names used for your financial accounts. Sometimes marked as “Also Known As” or “AKA.” This can include maiden names or variations on the spelling and format of your full name. Amortization The process of gradually repaying a debt with regularly scheduled payments over a period of time. AnnualCreditReport.com The official website for obtaining your free credit report disclosures from the credit bureaus, Equifax, Experian and TransUnion. You have the right to request your credit reports online, by phone or by mail for free once every 12 months under FACT Act regulations. This free service can only be used once a year and does not include your credit scores. Annual Fee | A charge sometimes required by credit card companies for use of an account. Annual fees range between $10-50 a year and are most common with rewards cards or cards for subprime borrowers. Annual Percentage Rate (APR) | The interest rate being charged on a debt, expressed as a yearly rate. Credit cards often have several different APR’s – one for purchases, one for cash advances and one for balance transfers. Application Fee | Amount a lender charges to process your loan application documents. Application fees are common with mortgage loans and many lenders will apply the cost of the application fee towards your closing costs. Application fees are generally non-refundable. Application Scoring | A specific kind of statistical scoring that businesses use to evaluate an applicant for acceptance or denial. Similar to credit scoring, application scoring often factors in other relevant details such as employment status and income to determine risk. Appraisal Fee | The amount charged to deliver a professional opinion about how much a property is worth. For a standard home or condominium, this fee is usually around $200-500. Appraised Value | An educated opinion of how much a property is worth. An appraiser considers the price of similar homes in the area, the condition of the home and the features of the property to estimate the value. ARM (Adjustable Rate Mortgage) | A mortgage that has an interest rate which changes over the life of the loan, usually increasing at regular intervals. Asset Assets are things owned by a person that have cash value. This can include homes, cars, boats, savings and investments. Authorized User | Anyone who uses your credit cards or credit accounts with your permission. More specifically, someone who has a credit card from your account with their name on it. An authorized user is not legally responsible for the debt. However, the account may appear on their credit report which means it may also be included in the authorized user’s credit score calculation. Back-End Ratio or Back Ratio | The sum of your monthly mortgage payment and all other monthly debts (credit cards, car payments, student loans, etc.) divided by your monthly pre-tax income. Traditionally, lenders wouldn’t give people loans that increased this ratio past 36%, but they often do now. (See Debt-to-Income Ratio) Balance Transfer | The process of moving all or part of the outstanding balance on one credit card to another account. Credit card companies often offer special rates for balance transfers. Balance Transfer Fee | The fee charged customers for transferring an outstanding balance from one credit card to another. Card issues offer teaser rates to encourage balance transfers. Balloon Payment | A loan where the payments don’t pay off the principal in full by the end of the term. When the loan term expires (usually after 5-7 years), the borrower must pay a balloon payment for the remaining amount or refinance. Balloon loans sometimes include convertible options that allow the remaining amount to automatically be transferred into a long-term mortgage. (See Convertible ARM) Bankruptcy A proceeding that legally releases a person from repaying a portion or all debts owed. Bankruptcy damages your credit for 7-10 years and should only be considered as a last resort if you cannot repay your debts. (See Chapter 7-13 Bankruptcy) Beacon Score | The name of the FICO score from Equifax. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data. Bi-Weekly Mortgage | A mortgage that schedules payments every two weeks instead of the standard monthly payment. The 26 bi-weekly payments are each equal to one-half of a monthly payment. The result is that the mortgage is paid off sooner. Broker Premium | The amount a mortgage broker is paid for serving as the middleman between a lender and a borrower. This premium comes from the surcharge a broker applies to a discounted loan before offering it to a borrower. Borrower The individual who is requesting the loan and who will be responsible for paying it back.