Account -- Money deposited with a financial institution for investment and/or safekeeping purposes.

ACH (Automatic Clearing House) – Electronic drafting system that debits an authorized bank account and electronically transfers the funds scheduled for remittance.

Adjusted balance -- The balance that remains when all payments made during a billing cycle are subtracted from the balance from the previous billing cycle. This balance does not include finance charges for the current billing cycle.

Affinity card -- A credit card offered by a lending institution in partnership with another institution. These cards are also known as co-brand cards, because both institutions lend their branding to the card.

Amortization -- A loan repayment plan, which enables the borrower to reduce his debt gradually through monthly payments of principal and interest.

Amortization schedule – An amortization schedule shows the amount of each payment applied to interest and principals and shows the remaining balance after each payment is made.

Annual fee -- An annual fee for a line of credit may be required. If an annual fee is assessed you will be billed for that amount, annually for the term of the loan.

APR (annual percentage rate) -- To make it easier for consumers to compare mortgage loan interest rates, the federal government developed a standard format called an "Annual Percentage Rate" or APR to provide an effective interest rate for comparison shopping purposes.  Some of the costs that you pay at closing are factored into the APR for ease of comparison.  Your actual monthly payments are based on the periodic interest rate, not the APR.

APY (annual percentage yield) – The amount of interest earned on an account after one year.

ARM (adjustable rate mortgage) – An adjustable rate mortgage, commonly referred to as an ARM, is a loan type that allows the lender to adjust the interest rate during the term of the loan.  Generally, these changes are determined by a margin and an index so that the interest rate changes, up or down, are based on market conditions at the time of the change.  Most often these interest rate changes are limited by a rate change cap and a lifetime cap.  If you apply for an adjustable rate mortgage, the lender is required to provide you with an ARM Program Disclosure, which spells out the terms of the loan.

Assets -- Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds and so on).

ATM -- Acronym for automated teller machine.

Authorized user -- A person who has been given permission to make changes to a credit account. This status must be given by the primary account user. An authorized user is not legally responsible for repaying the account.

Average daily balance -- The balance that results from adding together all the daily balances of a credit account in the billing cycle and dividing by the number of days in the billing cycle. This balance is often used to calculate finance charges.

Balance-- An outstanding amount of money. In banking, balance refers to the amount of money in a particular account. In credit, balance refers to the amount owed.

Balance transfer-- Repayment of one credit debt with another credit source.

Balance transfer fee-- The fee charged to transfer balances between two credit sources. This fee is often a percentage of the amount transferred.

Balloon mortgage – A short-term fixed-rate loan which involves smaller payments for a certain period of time and one large payment for the entire balance due at the end of the loan term.

Balloon payment – The final payment that is made at the maturity date of a balloon mortgage and pays the loan in full.

Bank -- An establishment for lending, issuing, borrowing, exchanging, and safeguarding money.

Bankruptcy -- A court proceeding in which a debtor, who owes more than his assets, can relieve the debts by transferring his assets to a trustee.

Billing cycle -- The period of time that a credit statement covers.

Billing statement -- The summary of all actions applied to a credit account during a billing cycle. These can include payments, purchases, finances charges, fees and other transactions.

Bi-weekly mortgage payment – A mortgage that requires payment to reduce the debt every two weeks instead of monthly. The 26 (sometimes 27) biweekly payments are each equal to one-half of the monthly payment that would be required with a standard 30 year fixed-rate mortgage. The result is a faster loan balance reduction with substantial savings in interest.

Bond -- An interest-bearing certificate that serves as evidence of a debt with a maturity date. Typically, bonds represent obligations of a government or business corporation. A real estate bond is a written obligation, usually secured by a mortgage or deed of trust.

Borrower -- A person who received funds in the form of a loan with an obligation to repay principal with interest.

Bridge financing – A loan spanning the gap between the termination of one loan (generally short-term) and the start of another (generally permanent long-term) loan.  Also referred to as gap financing.

Bridge loan – Sometimes called a "swing loan", a bridge loan is generally a loan that is secured by a borrower's current residence to obtain the funds needed to purchase a new home if the current residence will not be sold prior to the purchase of a new home.

Bounced check-- A check that a bank has refused to cash or pay because you have no funds to cover it in your account.

Canceled check-- A "used" check that has been paid and subtracted from the check-writer's account. Canceled checks have extra data on them from the bank. They are usually mailed to the writer each month with the statement, although many banks keep records that are available upon request. Canceled checks are excellent receipts that should be kept for reference and tax purposes.

Cap – Refers to a provision of an adjustable rate mortgage (ARM) that limits how much the interest rate or payment can increase or decrease.

Capital --1) The net worth of a business defined by the amount by which its assets exceed its liabilities. 2) Money used to create income. 3) The money or other assets comprising the wealth at the disposal of a person or business enterprise. 4) The accumulated wealth of a business or individual.

Cardholder agreement -- The written statement that defines and explains all legal terms for a credit card agreement. It includes payment terms, billing dispute procedures and communications guidelines, among other items.

Cash—Currency, checks and other negotiable instruments acceptable for direct deposit by a bank..

Cash advance fee-- A fee assessed when a card holder uses a credit card to obtain cash. These fees are often charged as a percentage of the cash obtained.

Cashier’s check-- A check issued by a bank, drawn on its own funds rather than on one of its depositor's funds.

Cash to close – Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.

Cash reserve – A requirement by some lenders that buyers have sufficient cash remaining after the closing to make the first mortgage payment.

Certificate of deposit (CD) -- An instrument, issued by a bank or other financial institution, that is evidence of a type of savings deposit. The document includes the institution’s promise to return the deposit, plus earnings at a specified interest rate within a specified period.

Check-- Any written document instructing a bank to pay money from the writer's account.

Checking account -- An account for which the holder can write checks. Checking accounts pay less interest than savings accounts, or none at all.

Check safekeeping – the customer’s checks are kept on record at the bank and the canceled checks are not returned to the customer.

Clear -- A check "clears" when its amount is debited (subtracted) from the payer's account and credited (added) to the payee's account.

Closing – A meeting of the parties involved in a real estate transaction to finalize the process.  In the case of a purchase, a closing usually involves the seller, the buyer, the real estate broker and the lender.  In the case of a refinance, the closing involves the borrower and the lender.  Sometimes referred to as the settlement or the close of escrow.

Closing costs -- The total of all the items that must be paid at closing related to your new mortgage. Closing costs are made up of individual closing cost items such as origination fees, escrow fees, underwriting fees and processing fees. Most closing cost items are included as numbered items on the HUD-1 Settlement Statement.

Closing statement -- Also referred to as the HUD-1 or the settlement statement, this is the document that provides line by line detail of the financial details related to a specific real estate transaction such as the fees paid by the seller and the buyer for a purchase transaction or the fees paid by the borrower for refinances.

Co-borrower--A person who signs a promissory note along with the primary borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. Sometimes called a co-signer.

Collateral -- Anything that a bank accepts as security against the debtor's not repaying a loan. If the debtor fails to repay the loan, the bank is allowed to keep the collateral. Collateral is most commonly in the form of real estate (e.g., a home).

Compensating balances – A demand deposit collected balance, kept on deposit by a customer,  designed to offset the expenses of the bank for activity or lines of credit.

Compound interest – Interest paid on the original principal balance, and on the accumulated and unpaid interest.

Co-signer -- Another person who signs your loan and assumes equal responsibility for it.

Credit -- In business, buying or borrowing on the promise to repay at a later date. In any credit arrangement there is a creditor (a person, bank, store, or company to whom money is owed) and a debtor (the person who owes money). In bookkeeping, credit is a sum of money due to an individual or institution.

Credit bureau -- An agency that checks credit information and keeps a complete file on people who apply for and use credit.

Credit card -- A plastic card that gives access to a line of credit. Users are limited in how much they can charge, but they are not required to repay the full amount each month. Instead the balance (or "revolve") accrues interest with only a minimum payment due.

Credit insurance -- A coverage that pays credit card debt in the event of death, disability or loss of employment.

Credit limit -- The maximum amount of money a borrower can access in a credit account.

Credit rating -- A financial institution's evaluation of whether a person is suitable to receive credit. Credit ratings are based on an individual's character, capacity to repay, and capital.

Credit report -- A record of an individual's current and past debt repayment patterns.  A credit history helps a lender to determine whether a borrower has a history of repaying debts in a timely manner.  For our comparison purposes, the credit report fee is considered to be a third party fee.

Currency -- Money -- anything used as a common medium of exchange. In practice, currency means cash, particularly paper money. Bankers often use the phrase "coin and currency" to refer to cents and dollars.

Debit -- A bookkeeping term for a sum of money owed by an individual or institution; a charge deducted from an account.  

Debit card -- A plastic card which looks similar to a credit card, that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers.

Deed -- The written instrument that conveys a property from the seller to the buyer.  The deed is recorded at the local courthouse so that the transfer of ownership is part of the public record.

Default -- A status assigned to a cardholder if he or she fails to perform or conform to all the items listed in the cardholder agreement.

Demand deposit -- A checking account.

Deposit slip -- An itemized slip showing the exact amount of paper money, coin, and checks being deposited to a particular account.

Depositor -- An individual or company that puts money in a bank account.

Depreciate -- (1) In accounting, the process of periodically reducing a fixed asset’s book value by charging a portion of the asset’s cost as an expense to the period in which it provides a service. (2) To decrease in service capacity or usefulness.

Endorse -- To sign, as the payee, the back of a check before cashing, depositing, or giving it to someone else. The first endorsement must be made by the payee to authorize the transaction. Later endorsements may be made by whoever receives the check.

FDIC insured -- All deposit accounts offered by The Farmers & Merchants State Bank are insured by the Federal Deposit Insurance Corporation  (deposit insurance offered by the federal government) for up to $100,000 per account.

Federal Reserve System -- A governmental agency established by Congress to organize and regulate banking throughout the United States. The twelve reserve banks keep paper and currency reserves for affiliated banks.

Fixed assets --  Thos items of a permanent nature required for the normal conduct of a business and not converted into cash during a normal fiscal period.  Fixed assets include furniture, buildings, and machinery.

Fixed interest rate -- The interest rate does not change for the full term of the deposit or loan product.

Foreign currency surcharge -- A fee charged when a card purchase utilizes a foreign currency and it must be converted into the cardholder’s home currency.

Grace period -- The length of time between the use of credit to make a purchase and the start of interest on the amount charged.

Guarantor -- A person who is financially responsible for the repayment of a credit account but has no use privileges.

Guaranty – A pledge to make good a note or security in case of default by the borrower.  Although the original debtor is responsible for the debt, a guarantor becomes liable in the event of a default.

Home equity loans/lines of credit --loans that uses the borrower’s equity in their home as collateral for the loan. 

Index -- A published interest rate used to establish the interest rate offered on an Adjustable Rate Mortgage (ARM).  Some of the most common indices are treasury bills, treasury securities, London Inter-Bank Offering Rates (LIBOR) and the Cost of Funds Index (COFI).

Interest -- The cost of the use of money.

Introductory rate -- A temporarily low interest rate, used as incentive to entice a consumer to sign up for credit. After the introductory period, the rate will increase to the standard percentage.

IRA (individual retirement account) -- A tax-deferred retirement account for an individual that permits individuals to set aside up to $2,000 per year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty).

Joint account -- A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.

Late payment -- A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.

Letter of credit – A financial instrument, issued to a company or person by a bank that substitutes the bank’s credit for the company’s credit. 

Liabilities -- Money owed to individuals, businesses, or institutions.

Line of credit -- An agreement by a financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Market economy -- An economic system permitting an open exchange of goods and services between producers and consumers, such as is found in the United States.

Maturity – The date on which the principal balance of a financial instrument becomes due and payable.

Minimum payment -- The smallest payment a consumer can make in a billing cycle to keep the account from going into default.

Money -- Anything generally recognized as a medium of exchange.

Mortgage -- The legal document used by a borrower to pledge their property as security in order to obtain a loan.  In some areas of the country, the mortgage is called a "deed of trust".

Overdraft -- A check written for more money than is currently in the account. If the bank refuses to cash the check, it is said to have "bounced."

Payee -- An individual or company to whom a check is written; one who receives money as payment.

Payer -- An individual or company who writes a check; one who gives money as payment.

Penalty rate -- A higher interest rate imposed on an account when it has lapsed into default.

Personal identification number (PIN) -- A code that provides security for consumers at an ATM.

Point of sale (POS) -- The store or other location where a transaction takes place.

Points  -- Fees that are collected by the lender in exchange for a lower interest rate.  Commonly called discount points, each point is equal to 1% of the loan amount.  For our comparison purposes, a discount point is considered to be a lender fee.  To determine if it is wise to pay discount points to obtain a lower rate, you must compare the up front cost of the points to the monthly savings that result from obtaining the lower rate.

Posting date -- The date when a transaction is recognized on your account.

Pre-qualification -- Procedure to determine how much money a potential homebuyer will be eligible to borrow prior to actually applying for a loan.

previous balance -- The balance that has carried over from the previous billing period.

Prime rate -- The interest rate that banks charge to their best customers for short-term loans. Changes in the prime rate can influence changes in other interest rates.

Principal -- The actual balance, excluding interest, of a mortgage loan.  Also refers to the amount of the monthly mortgage payment that will be applied to the actual balance.

Proprietary credit card -- A private labeled credit card typically issued by a department store or petroleum company that can only be used at those specific outlets.

Refinance -- The process of paying off any existing mortgages on a home with a new mortgage loan.

Revolving line of credit -- A credit agreement (typically a credit card) that allows a customer to borrow against a pre-approved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due.

Savings account -- A bank account that accrues interest in exchange for use of the money on deposit.

SBA (Small Business Administration) – a government agency that guarantees loans for small, independently owned businesses.

Secured card -- A credit card that is guaranteed by a security deposit so that repayment of the amount borrowed is assured. This is an option to begin to repair a bad credit history.

Secured loan – A loan that is backed by collateral.

Service charge -- A monthly fee a bank charges for handling a checking account.

Stop payment -- A request made to a bank to not pay a specific check. If requested soon enough, the check will not be debited from the payer's account. Normally there is a charge for this service.

Term -- The loan term is the number of months that you will make monthly payments. If the loan term is the same as the payment calculation term, you will pay the loan in full during the loan term and no balance will be due. If the payment calculation term is greater than the loan term, a balance or "balloon payment" may be due at the end of the loan term.

Tiered -- A term that applies to interest rates, where the actual rate applied depends on the balance on the account.

Title insurance – An insurance policy that protects the lender (and sometimes the property owner as well) against loss due to disputes over the ownership of a property and defects in the title that were not found in the search of the public record.  For our comparison purposes, the title insurance cost is considered to be a third party fee.

Transaction date -- The date that a purchase was made or a cash advance was taken.

Truth in lending act – Also known as Regulation Z, this federal regulation requires a lender to provide borrowers with a disclosure estimating the costs of the loan including your total finance charge and the Annual Percentage Rate (APR) within three business days of the application for a loan.  This act is designed to provide consumers with a standard method of comparing the financing costs from lender to lender.

Underwriting – Detailed process of evaluating a borrower's loan application to determine the risk involved for the lender. Underwriting usually involves an in-depth analysis of the borrower's credit history, as well as an examination of the value and quality of the subject property.

Unsecured debt --  A loan that is not backed by collateral.

Variable rate -- An interest rate that changes and is determined by adding the index rate to the previously disclosed margin.

Wire transfer -- A transaction that electronically transfers money from one financial institution to another.

Wire transfer fee -- A fee charged by some lenders to cover the cost of wiring the mortgage funds to the appropriate parties, such as the title company or attorney, so that they are available for closing.  For our comparison purposes, a wire transfer fee is considered to be a third party fee.  However, some lenders may not charge for this service.