Translating financial lingo can sometimes be a burden! We want to ensure that all of our customers have a clear understanding of everything we discuss. If something isn’t clear, please ask us! In the meantime, we have compiled a list of some of the most commonly used terms and their definitions.
Amortization: The gradual reduction of a loan, or other obligation, by making periodic payments of principal and interest.
Annual Percentage Rate (APR): The true cost of credit on a yearly basis expressed as a percentage. The APR results from an equation that considers the amount financed, the fees and the length of the loan.
Appraisal: A professional evaluation of the market value of an asset (example: a home) by an independent expert.
Available Balance: The portion of an account balance on which the Bank of Washington has placed no restriction, making it available for immediate withdrawal.
Closing: When discussing buying homes, this is when the deal is sealed! This is the meeting where the property and funds legally change hands.
Closing Costs: The expenses buyers/sellers incur to complete a real estate transaction. Our lenders will advise you on what funds, if any, will be needed at a closing.
Collateral: Specific property pledged by a borrower to secure a loan.
Co-signer: An individual who signs a note to guarantee a loan made to another party. The co-signer is jointly responsible for the repayment of the loan.
Direct Deposit: The electronic transfer of funds directly into a customer’s account. For example, an employer could direct deposit a paycheck into their employee’s checking account.
Down Payment: The amount of money that customers are expected to pay up-front when financing a good/service. This amount is typically based on a percentage of the full purchase price of the good/service, and is not financed through the loan.
Escrow: Generally refers to money held by a third-party on behalf of transacting parties. It is best known in the context of real estate, specifically in mortgages where the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage. Or, for example, if someone agrees to sell their home pending an inspection, the buyer and seller may use escrow. The buyer would put their funds in escrow pending the inspection, and the seller then has confidence that the buyer has sufficient funds for the purchase.
Home Equity Loan: A type of real estate credit in which the homeowner borrows against the value of his or her residence through a second mortgage. This is frequently set up as a home equity line of credit (HELOC), against which the borrower can draw at any time.
Interest Rate: The amount charged by a lender to borrow funds, paid for over time, typically noted on an annual basis, known as the Annual Percentage Rate (APR).
Individual Retirement Account (IRA): An account into which a customer can make a deposit and earn interest for retirement, and the deposits are not taxed until withdrawn.
P2P (Person-to-Person Payment): Allows customers to send money to other people from their mobile device or Online Bill Pay with just an email address or mobile number. Recipients will receive an email or text message with instructions to provide their personal and bank information in order to collect funds. The Bank of Washington’s P2P payments system is called Popmoney.
Prime Rate: A benchmark or guideline interest rate the bank establishes from time to time and uses in calculating an appropriate rate for a particular loan. It is largely based on the federal funds rate.
Principal: The actual amount of a loan, not including interest.
Refinancing: To finance something again, typically changing a loan’s terms and interest rate.
Revolving Credit: A line of credit that allows the borrower to withdraw funds multiple times up to a certain dollar amount, repay those funds, and then start the cycle over again.