Call option is a condition provided in the mortgage deed which gives a right to the mortgagee to call the mortgage due and payable at the end of a determined period for any reason.
In case of fluctuating interest rates in Adjustable Rate Mortgages, the borrower can exercise a pricing option at the time of application to cap a declining market rate. He is assured that the rates and points exisitng at the time will not rise with the market rates but neither can they come down if market rates decline. Caps have different terms depending on how often and when the borrower exercises this option. A cap is costly to the lender and thus costs the borrower more. Some ARMs may have a life cap but permit the interest rate to fluctuate freely for which they require a minimum payment which changes annually. This payment also has its limitations in how much it can change and this limit is also referred to as a cap.
This term is used when a borrower refinances his mortgage to obtain a new loan far exceeding the amount of his current loan amount with the intention of using it for personal or other reasons.
Certificate of eligibility
This is a document issued by the Veternas Administration to qualified veternas certifying them eligible for a VA loan for home and business. This certificate can be obtained by sending DD-214 (Seperation Paper) to the local VA office along with a VA form 1880 which is a request for Certificate of Eligibility)
Certificate of reasonable value (CRV)
The Department of Veternas Affairs (VA) issues this document to establish the maximum amount of loan that can be given for a VA mortgage. It is a VA appraisal expressing the property's current market value.
Chain of title
It is a documented analysis of all transfer titles on properties having taken place from the first one to the most recent.
As the name implies it is clear and free of legal encumberances and liens vis-vis the ownership of the property
In some states a real estate transaction is considered 'closed' only when all the pertinent documents are recorded at at the local recorders office. In others, closing is a meeting between the buyer, seller and lender or their agents where all documents are signed and funds legally change hands. Closing is also called settlement and includes fees like origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing is usually about 3 percent to 6 percent of the mortgage amount.
These are expenses incurred over and above the price of the property, by buyers and sellers when transferring ownership of property. They are of two types, non recurring and pre paid. The former costs are incurred on items paid just once as a result of buying property or obtaining a loan. Pre-paid are costs which are recurring such as property taxes and homeowners insurance. A lender usually gives the borrower an estimate of the total costs on Good Faith within three days of receiving a home loan application. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.
This is the final statement of costs incurred on purchasing property or closing of a loan. It is also known as the HUD-1
Cloud on title
The provision or conditions disclosed by a title search that unfavorably affect the title to property and cannot be removed except by court action, release or deed.
It is the asset that acts as the guarantee in the repayment of the loan. The borrower may risk losing this asset if he is unable to repay his loan according to the terms of the loan contract or the mortgage or the trust deed.
When a borrower lags behing in his loan payment, the lender contacts him in an attempt to bring the delinquent mortgage current which then goes to 'collection'. The efforts to file and mail the necessary documents and notices in the eventuality of a foreclosure of the property is called collection.
Commission is a fee charged by the sales professionals like brokers or agents for negotiating deals on real estate or on loan transactions. It is usually a percentage of the price of the property or loan and taken out of the charges paid by the seller or buyer in the purchase transaction.
The common areas are segments of land, building and amenities owned and managed by condominium projects homeowner's assocation, planned unit development or any such association. All unit owners who use these premises also share common expenses for their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
In some of the south western states, the property acquired during marriage is presumed to be jointly owned by the couple unless expressed as separate property of either spouse or other special circumstances.
It is a type of ownership in a real estate project, wherein each unit owner has a title to a unit in the building or property. He has an undivided interest in all common areas and in some the exclusive use of certain limited common areas. See further Condominium conversion
When an individual changes the ownership from that of an exisitng project which is often a rental one to the condominium form of ownership.\n\nSee further Condominium
It is a short term and interim loan to pay for the construction costs of building homes. It is in the form of periodic payments by the lender to the builder as the work progresses.
It is a condition or qualification or provision that must be taken care of before the contract becomes legally binding. For example, buyers while purchasing a home, will put in a contigency that the contract will not be legally binding until he acquires a satisfactory home inspection report from a qualified home inspector.
An agreement either written or oral, that qualifies whether a certain thing can be done or not.
When an adjustable rate mortgage is converted to a fixed rate mortgage under certain conditions or by a borrower within a specific time.
It is a like a multiple ownership wherein the residents of a housing project with multiple units own shares of the cooperative corporation which owns the said property. This lends each resident the righ to occupy a particular unit.
Cost of funds index (COFI)
It is one among many indexes used to calculate the changes in interest rates for some ARMs. It stands for the the weighted-average cost of savings, borrowings, and advances for some banks, savings and loans in the 11th District members of the Federal Home Loan Bank of San Francisco.
When a borrower receives something of value in exchange for a promise to repay the lender at a later time in the form of an agreement or contract.
It is the documented and detailed statement of an individual's fully repaid debts. It helps the lender to ascertain the risk and creditworthiness of a potential borrower and whether he will be able to repay future debts in time.
A documented statement of an individual's credit history and borrower's current credit standing. It is prepared by a credit bureau and used by lenders in determining the creditworthiness of the loan applicant.
An organization that colates, references, updates and stores financial and public information about the payment records of individuals who are applying for loans.
An agreement or provision in a lease or other contract that clearly defines the conditions under which the parties can call off the deal.
The bundle of costs included in making an improvement or upgrade to a property, industrial building, or equipment. It can be anything from a major repair to an existing facility or building a new factory.
Any structure or other asset permanently added to a property that adds to its overall value.
Cash back mortgage refinance loan
a type of loan that is larger than the remaining balance on your current mortgage. If you refinance with a cash back mortgage, you literally get cash back from the equity that has accumulated in your home. These types of loans are often used for home improvements or tuition.
The amount of cash collected over a certain period of time from an income producing property. This is money that is moving in and out of your business or your investment property which will help establish your business or property's solvency.
Latin for "the buyer needs to beware." It means that the buyer of a property or item buys or invests at his or her own risk.
A cash amount which is determined by the lender which is often required to be held in reserve. This is in addition to the down payment and closing costs. These may be in the form of deposits, money market accounts, or bonds.
The maximum allowable interest rate of an adjustable rate mortgage.
Certificate of Veteran status
FHA form filled out by the VA to establish a borrower's eligibility for an FHA Vet loan. These documents are obtainable through your local VA office.
CLTV or Combined loan-to-value ratio
A ratio which compares the person's overall mortgage debt to the home's fair market value. This is expressed as a percentage.
A co-borrower in any lending situation is a person who accepts responsibility for repaying the debt. This is also known as a co-signer or a co-applicant.
A written agreement in which a lender agrees to lend money on certain terms over a specified period of time.
Comparables are recently sold properties that are similar in square footage, location and available amenities to the home for sale. These comparable properties are used in the appraisal process to help determine the fair market value of a property. This is also known as conducting a Comparative Market Analysis.
A certificate of completion is required when a borrower uses a loan for home improvements or renovation and for the construction of a new home. When the construction project is finished, a certificate of completion must be signed by a qualified authority, like the architect or developer.
Compound interest is calculated over the total amount owed, including interest that has accumulated. Borrowers experience compounding interest during negative amortization when the principal amount of the loan actually increases because the monthly payments are lower than the full amount of interest owed.
A promise by a lender to authorize a loan if the borrower meets certain requirements in the application process.
A conforming mortgage meets the requirements to be eligible for purchase or securitization by one of the government-sponsored enterprises such as Fannie Mae, Freddie Mac and Ginnie Mae. These requirements include the size of the loan, type and age. These requirements change from year to year and vary by state.
Construction to permanent loan
This loan pays first for the construction of a new home, then for a long-term mortgage.
Consumer credit counseling service
A counseling service that offers advice about how to work out a realistic budget and a debt repayment plan. The goal is to ensure that debts are paid back and the consumer knows how to avoid debt in the future. These services often work closely with creditors and can greatly reduce the interest rates on credit cards. Many people visit one of these agencies when they are preparing to buy a home in order to fix their credit score.
Consumer Reporting Agency
A company that obtains files and sells information to creditors when they are deciding to extend credit to an applicant. It is important for the consumer to ensure that the information obtained by the reporting agency is correct. Consumers are able to dispute incorrect information with the agency.
Pieces of real estate or parcels that are next to each other.
Contract for deed
The sale of property or real estate in which the buyer takes possession while making payments. The seller holds the title until full payment is made. This may also be called a land contract.
Contract to purchase
A document showing the price of the real estate and other terms of the transfer of title, which has been approved by both the buyer and the seller. This is also known as an agreement of sale, a purchase contract or a sale contract.
The person who constructs or oversees construction of a house or a large renovation.
A voluntary obligation as a result of a contract, such as a mortgage or trust deed.
A set of restrictions and guidelines that a developer must follow as set by local governments that oversee the amount, type and density of new construction.
This refers to a fixed-rate, 30-year mortgage that is not insured by the government (FHA, Farmers Home Administration (FmHA) or Veterans Administration). In this mortgage the interest rate will not change during the entire term of the loan.
An adjustable-rate home mortgage where the borrower has the option to change the loan terms into a fixed-rate loan at any time.
A document that transfers title to property. It is also used to affect a transfer, such as a deed, or mortgage.
A tax imposed on the transfer of real property.
A real-estate broker who earns a commission from locating a buyer for a property and initiates a negotiation.
Cost of Deposit Index (CODI)
The Cost of Deposit Index (CODI) is one of several indexes commonly used to set the adjustment amount of an adjustable rate mortgage (ARM). CODI is calculated as a 12-month rolling average of three-month certificate of deposit, yields as reported by the Federal Reserve Board.
The rejection of an initial purchase offer by submission of another offer with different terms (such as price or closing date).
An innovative and atypical way of structuring a home loan that allows the buyer to buy afford house.
This method to reduce credit risk by requiring collateral, letters of credit, mortgage insurance, corporate guarantees, or other agreements to provide an entity with some assurance that it will be recompensed to some degree in the event of a financial loss.
Credit life insurance
A type of life insurance that will help make payments on the loan if the consumer becomes disabled. This coverage is optional. The cost of the policy is sometimes rolled into the loan principal amount.
A measurement of a person's creditworthiness. People who pay down their debts on time are considered a better risk by lenders and will be charged lower interest rates for borrowing money. The risk factor is determined by your credit history and your credit score.
A number that reflects the credit history as outlined in that person's credit report. A lender will calculate this number using a computer system as part of the process of assigning interest rates and terms to the loans they make. The higher the number, the better the terms that a lender will offer. A good credit score is around 720. It is possible to raise your credit score over time and by appealing certain items that appear on your report. It is smart for consumers to monitor and track their credit reports to ensure that the information is correct and to make sure that the items that they have disputed do not remain on their reports.
The person or company/lender who is owed money.
A cul-de-sac is a street which ends in a broad circle with houses arranged around it. The street is typically a dead end street.
A minor or inexpensive problem with a property that can be remedied. Peeling or chipping paint is a curable defect, but location in a high crime area is not.
How a home looks from the street.
A contractor that constructs or remodels houses based on plans submitted by the client.
A house built according to plans which have been jointly designed by the owner/buyer and a hired architect.
A cafeteria plan is a type of employee benefit program that gives employees the ability to choose which nontaxable fringe benefits they will receive. The benefits are funded with pre-tax employee contributions, employer contributions, or a combination of both.
A call is a bond issuer's right to pay off a bond before the scheduled maturity, or a lender's right to demand full repayment of a loan before the scheduled maturity date. The term can also be used as a shortened version of call option, which is a contract allowing the holder to purchase a security at a certain price for a specific period of time.
A call loan is a debt instrument that gives the lender the right to demand full repayment prior to the scheduled maturity.
Call money market
The call money market provides short-term financing for brokers and dealers. Securities brokers might need such credit to support their own securities purchases, or to support the margin accounts that they provide to their customers.
Call money rate
Call money rate is the total annual finance charges, expressed as a percentage of the debt, that banks charge when making loans to brokers. Brokers might use the debt to support margin loans made to their customers.
Callable CD or bond
A callable CD or bond can be redeemed by the issuer before the scheduled maturity date. The issuer might choose to call the instrument if interest rates drop, such that redeeming the CD/bond and reissuing a new one would save on financing charges.
A callable loan is a debt instrument that gives the lender the right to demand full repayment prior to the scheduled maturity date.
Canada Education Savings Grant - CESG
A Canada Education Savings Grant (CESG), is a government grant that encourages Canadian citizens to save for their children's educational expenses. The grant amount is a percentage of the annual contributions made into a beneficiary's Registered Education Savings Plan (RESP).
Canada Premium Bond - CPB
A Canada Premium Bond (CPB) is a type of savings bond issued by the Canadian government. The CPB pays a higher rate of interest than a standard Canadian Savings Bond (CSB), but it has restrictions on when it can be cashed in. The CPB must be redeemed on or within 30 days of the anniversary of its issue date.
Canada Savings Bond - CSB
A Canada Savings Bond (CSB) is a savings bond instrument issued by the Canadian government. The holder of a CSB can cash it in at any time.
Canadian Investor Protection Fund - CIPF
The Canadian Investor Protection Fund (CIPF) is a not-for-profit entity that provides account protection to investors, in order to minimize losses if a securities dealer becomes insolvent.
Canadian Mortgage and Housing Corporation - CMHC
Canadian Mortgage and Housing Corporation (CMHC) is a government agency that manages several programs to help Canadian households obtain home financing. One of these programs, for example, offers low-cost mortgage insurance to approved borrowers. CMHC also conducts and distributes research on real estate trends in Canada and throughout the world.
Cancellation of debt
Cancellation of debt is the writing off of a borrower's outstanding principal balance, even though payment hasn't been made. The lender essentially wipes away the debt, and the borrower is free from obligation.
Cancellation of debt is the writing off of a borrower's outstanding principal balance, even though payment hasn't been made. The lender essentially wipes away the debt, and the borrower is free from obligation.
Capital is the money or property that a business uses to create revenue. The term can also refer to the total value of a business or individual, in terms of the value of assets owned less any debt.
A capital asset is owned property that's typically used for income generation or value growth. Real estate and securities portfolios are capital assets, as is factory equipment owned by a business.
A capital gain is the increase in an asset's value, such that it becomes worth more than the purchase price. The gain is known as an unrealized capital gain until the asset is sold. Once the asset is sold and the profit is made, the gain is called a realized capital gain.
Capital gain distribution
A capital gain distribution is a payout of realized profits from a mutual fund to its investors. A mutual fund earns capital gains in the same way that an individual investor would, by selling a security for more than the original cost. These realized profits are then paid out to the funds' investors through capital gains distributions.
Capital gains tax
Capital gains tax is an income tax levied on profits earned when an asset is sold for more than its purchase price. Capital gains tax is most commonly associated with profits made on selling shares of stock.
Capital growth strategy
Capital growth strategy is an approach to investing where the primary goal is to increase value over a long period of time.
A capital loss results when the value of an asset decreases below the original purchase price. If a share of stock is purchased for $10, and the value subsequently declines to $8, the stockholder incurs an unrealized capital loss. If the stockholder decides to sell the share for $8, the capital loss would then be realized.
Capitalization is a measure of a company's value. It can be calculated as the sum of a company's long-term debt and equity, or as the stock price multiplied by the number of shares outstanding.
Capitalization rate is a measurement of annual yield used for property and other capital assets. The capitalization rate is equal to income after taxes, divided by estimated value.
Capitalized (cap) cost
Capitalized (cap) cost is a figure representing the base value of a leased asset. Capitalized (cap) cost is used to calculate lease payments on auto and equipment leases.
Captive finance company
A captive finance company is a commercial entity that's wholly owned by another company, and whose business purpose is solely to finance customer purchases of the parent company's product. A retail chain selling consumer electronics, for example, might own a finance company that solely provides credit accounts to the retail customers who are buying electronics.
A caravan is a convoy of real estate agents previewing recently listed properties.
A cardholder agreement is the written statement of terms that governs a credit card account. The Federal Reserve requires credit card companies to provide cardholders with a cardholder agreement that defines the annual percentage rate, how minimum payments are calculated, annual account fees, and rights of the card holder when billing disagreements arise.
A carport is an unenclosed, roofed area designed for parking vehicles.
A carry back, or carryback, is the application of a current year's tax credit to a prior year's tax liability.
A carry forward, or carryforward, is the application of a current year's excess tax credits to a future year's tax liability.
Carrying charge is the cost of owning or storing an asset. If the asset is a physical commodity, the carrying charge might include storage costs and insurance. If the asset is a security, the carrying charge might be the ongoing costs of financing the security purchase.
A cash advance is a draw taken against a credit account in cash. Most credit card accounts allow for cash advances in addition to purchases, but the rates for cash advances are higher and the terms are more restrictive than those governing purchase transactions.
Cash advance fee
A cash advance fee is a charge levied by a credit card issuer when the cardholder draws down cash against a credit account. The fee might be structured as a per-transaction amount, or as a percentage of the amount of cash advanced.
Cash advance rate
Cash advance rate is a specific interest rate charged for cash borrowings against a credit line or credit card account. In the case of credit card accounts, cash advances generally accrue interest charges at a higher rate than purchases. Specific rates applied to purchases and cash advances should be spelled out in the cardholder agreement.
A cash budget is an estimate of future cash inflows (such as customer payments), and cash outflows (such as payments to vendors for inventory and supplies).
Cash cards are similar to gift certificates in that they're purchased for a set dollar amount, and then can be used like cash at certain retailers, restaurants, or service businesses.
Cash collateral is the sum of a borrower's liquid assets that are used as security for a loan. Cash collateral can also be the cash or cash equivalents of a debtor who has filed for bankruptcy protection.
Cash credit is a type of short-term business financing.
Cash method is a type of accounting that tracks income as it's received, and expenses as they're paid. This differs from accrual accounting, which matches income and expenses in the period when the transaction occurs, rather than when the payment is received.
Cash surrender value
Cash surrender value is the amount of money a life insurance policyholder will receive if he or she voluntarily cancels the policy.
A cashier's check is a draft written by a bank and signed by a bank cashier or officer. Cashier's checks do not bounce, as a personal check might, because the instrument is drawn on the bank, and not on a personal account.
Cashless exercise is a means of exercising an employee stock option without producing any cash. The optionholder borrows money from a broker to exercise the option, and then directs the broker to simultaneously sell enough shares to repay the borrowed funds.
Cash-on-cash return is a measurement of annual yield most commonly used with respect to investment properties. The calculation is the property's annual cash rental income divided by the total cash investment (or down payment).
Cash-out refinancing is the replacement of an old mortgage with a new and larger one. The amount of the new mortgage left over after paying off the old mortgage goes to the borrower as a lump sum cash payment.
CD (certificate of deposit) ladder
A CD (certificate of deposit) ladder is a portfolio of CDs that mature at regular intervals. An investor would develop a CD ladder to access higher time deposit rates while minimizing the risk of not being able to access cash if necessary.
CD line of credit
A CD line of credit is a debt facility that's secured by a certificate of deposit. If the debtor doesn't repay the line of credit as agreed, the lender can take the money invested in the CD.
A central bank is responsible for setting and implementing a political entity's monetary policy. An example is the Federal Reserve Bank in the United States. The Federal Reserve Bank oversees the monetary policy, issues money, and regulates the banking system, among other things.
Certainty equivalent is the rate of guaranteed return an investor would trade for a higher, but less certain, return. The certainty equivalent, which is lower than the riskier rate of return, helps corporate debt issuers determine what level of interest their bonds would have to pay to entice investors.
Certificate of claim
A certificate of claim is a borrower's promise to reimburse a lender if a foreclosure sale of the collateral doesn't produce enough money to pay back the loan balance and other amounts outstanding in full.
Certificate of deposit (CD)
A certificate of deposit, or CD, is a fixed-rate, time deposit issued by banks and other financial institutions. Upon purchasing the CD, the investor agrees to keep the funds on deposit with the CD issuer for a certain period of time. CDs pay higher interest rates than unrestricted cash deposits. Most CDs are FDIC-insured.
Certificate of deposit index
Certificate of deposit index, also known as cost of deposit index or CODI, is used as an underlying benchmark for interest rates on adjustable-rate mortgages. The index is an average of the most recent 12 months of three-month certificate of deposit yields, as published by the Federal Reserve Board.
Certificate of deposit index (CODI Index)
Certificate of deposit index, also known as cost of deposit index or CODI, is used as a underlying benchmark for interest rates on adjustable-rate mortgages. The index is an average of the most recent 12 months of three-month certificate of deposit yields, as published by the Federal Reserve Board.
Certificate of occupancy
A certificate of occupancy designates that a local building authority has inspected a recently built or renovated structure and deemed it safe to be occupied.
Certificate of sale
A certificate of sale is issued to the winning bidder at a foreclosure sale. The document indicates that the bidder will receive the property's title once any conditions of the sale are completed and confirmed by the court.
Certificate of title
A certificate of title describes a real estate property and the status of its ownership.
Certificate of use/right to use/timeshare license
A certificate of use/right to use/timeshare license documents the certificate holder's entitlement to stay at a vacation property for a certain period of time.
Certified Annuity Specialist - CAS
A Certified Annuity Specialist (CAS) is a person who's been trained in the field of fixed- and variable-rate annuities. The designation is issued by the Institute of Business & Finance upon completion of specific course requirements, and is only renewed when the specialist completes a minimum amount of continuing education per year.
A certified check is a draft that's guaranteed by the issuing bank. The bank may set aside the amount of the check from the accountholder's available funds so that the money is not spent before the check is presented for payment. Generally, a bank charges a fee for check certification.
Certified Divorce Financial Analyst - CDFA
A Certified Divorce Financial Analyst (CDFA) is a personal finance professional who specializes in divorce. CDFA requirements include a minimum level of work experience, membership in the Institute for Divorce Financial Analysts, and completion of specific coursework. CDFAs may assist in mediation and financial planning among other things.
Certified Financial Divorce Practitioner - CFDP
A Certified Financial Divorce Practitioner (CFDP) is a financial professional who specializes in planning for and managing the financial issues surrounding divorce. The CFDP must be a member of the Academy of Financial Divorce Practitioners, and must complete specific coursework before receiving the designation.
Certified Fund Specialist - CFS
A Certified Fund Specialist (CFS) is a financial professional who specializes in mutual funds and mutual fund investing. To obtain the CFS designation, an individual must complete self-study training provided by the Institute of Business & Finance.
Certified Senior Consultant - CSC
A Certified Senior Consultant (CSC) is a financial planning professional who specializes in assisting seniors. To receive the CSC designation, the professional must complete a self-study course offered by the Institute of Business & Finance. Continuing education is also required in each of the first five years following certification.
Change frequency is the period of time between scheduled adjustments to the interest rate on an adjustable-rate mortgage.
A change order is a written authorization to amend a contract; the term is commonly used during building construction to document changes to the building plans.
Chapter 10 refers to the section of the U.S. Bankruptcy Code that defines a type of court protection for insolvent entities. In Chapter 10 bankruptcy filings, the insolvent entity is reorganized by an independent, court-appointed consultant.
Chapter 11 refers to a section of the U.S. Bankruptcy Code that defines a type of court protection for insolvent entities or individuals. In Chapter 11 bankruptcy filings, the insolvent party is allowed to create and implement the reorganization plan.
Chapter 12 refers to a section of the U.S. Bankruptcy Code that defines a type of court protection designed for insolvent farms and fisheries. In Chapter 12 bankruptcy filings, the owner of the farm or fishery will negotiate a repayment plan with the bankruptcy trustee and creditors.
Chapter 13 refers to a section of the U.S. Bankruptcy Code that defines a type of court protection for insolvent individuals. In Chapter 13 bankruptcy filings, the insolvent person is allowed, under supervision, to keep his or her property and repay outstanding debts over several years.
Chapter 7 refers to a section of the U.S. Bankruptcy Code that defines a type of court protection for insolvent individuals or entities. In Chapter 7 bankruptcy filings, the insolvent entity's property is sold off, and the proceeds are used to pay creditors. When the insolvent entity is a company, the secured creditors are paid first, followed by unsecured creditors and, lastly, investors.
Chapter 9 refers to a section of the U.S. Bankruptcy Code that defines a type of court protection for insolvent municipalities. In Chapter 9 bankruptcy filings, the insolvent municipality and its creditors must negotiate a repayment plan.
A character loan is a debt facility that's approved on the strength of the borrower's personal characteristics, such as reputation and credit history, rather than that borrower's financial qualifications.
A charge card is a short-term credit account that requires full payment of the balance by the due date. The cardholder isn't allowed to carry debt balances over into the next billing period.
A charge off is an expense line item on a company's income statement. The charge off could be related to uncollectible accounts receivable, or a devaluation of the company's assets. In order to reduce the balance sheet account in question (i.e., the accounts receivable balance or the book value of a devalued asset), the company must take a charge against its earnings.
A chargeback is an adjustment to a credit card account that results from the cardholder's successful resolution of a dispute with a merchant. The chargeback reverses a charge previously placed on the account. A cardholder would dispute a charge if goods or services purchased were not delivered as expected, or if the purchase in question was unauthorized by the cardholder.
Charitable contribution deduction
A charitable contribution deduction is a tax break earned for donating funds or items to a qualified charity. The charitable contribution deduction is reported as an itemized deduction on a tax return.
A charitable donation is a gift of money or property that's given to a nonprofit organization or charity. Many nonprofit organizations rely on charitable donations for continued funding. It's common for taxing authorities like the IRS to provide tax breaks to individuals and commercial entities that make qualifying charitable donations.
Charitable lead trust
A charitable lead trust is a financial arrangement that's designed to reduce the tax burden associated with assets to be inherited. The charitable lead trust is typically set up by the owner of an estate while that owner is still living. Income from the estate is donated to charitable organizations to offset the estate's tax liability. Once the taxes are reduced and the owner has passed, the principal can be transferred to the beneficiaries, who would face a significantly lower tax burden.
Charitable remainder trust
A charitable remainder trust is a financial arrangement designed to reduce the income tax liability associated with an estate. Income from the estate is distributed to the beneficiaries for a certain period of time. At the end of that specified period, the entire estate is transferred to designated charity organizations. In doing so, the capital gains tax associated with the donated assets is eliminated.
A charter is the legal documentation of a corporation's creation and structure. In the U.S., a charter is issued or approved by the state government. The document usually defines the name, location, and primary business activity of the corporation.
Chattel is a synonym for personal property, meaning property other than real estate.
A chattel mortgage is a debt facility that's secured by personal property. Chattel mortgages can be used to finance mobile homes, as long as the home isn't permanently affixed to the land. The lien would pertain to the home only, but not the land.
A check is a negotiable draft that directs a bank to pay a certain amount of money to a specific payee. The funds to make this payment would come from the checkwriter's deposit account that's held with the bank.
Check clearing is the process of moving a cash payment as directed by a check from the account where the check was drawn to the account where the check was deposited.
Check hold is the time period for which a banking institution waits before releasing funds associated with a deposited check.
Check kiting is a means of using two deposit accounts to withdraw money illegally from the bank. The accountholder writes a check from one account, even though the account doesn't have the necessary funds to cover the check. That check is then deposited into a second account, and a withdrawal is made before the bank realizes that the deposited check will be returned for insufficient funds.
Check representment is the process of repeatedly attempting to deposit a check that's been returned for insufficient funds until the necessary funds appear and the check can be paid.
Check safekeeping is a service that banks provide to their checking accountholders. Copies of canceled checks aren't returned to the accountholder each month, but instead, are held by the bank. Accountholders may request copies of specific checks, if necessary.
A checking account is an arrangement with a banking institution that allows a consumer to deposit funds and then write checks to be drawn on those deposited funds. Checking accounts vary widely in their features: some charge a monthly fee, some pay interest on the deposits, some have minimum balance requirements, etc.
Checks returned with statement
Checks returned with statement is an option offered with some checking accounts, whereby the bank returns all canceled checks to the accountholder, along with the monthly statement.
Cherry picking is the act of selectively choosing something. In investing, some investors and fund managers may choose securities that have performed well in another portfolio, rather than making the selection by way of thoroughly researching an entire category of securities. In bankruptcy, the courts might "cherry pick" the contracts that benefit the insolvent company, while eliminating the contracts that do not.
Child and dependent care credit
The child and dependent care credit is a tax break offered to taxpayers who must incur childcare or dependent care expenses in order to work or seek employment.
Child tax credit
A child tax credit is a tax break available to taxpayers who claim a dependent child, or children, on their tax returns.
A Christmas Club is a deposit account designed to help accountholders save for Christmas expenses. The account may be structured to fund itself via automatic monthly transfers from a linked checking account. Typically, the Christmas Club would pay interest on the deposits, and may assess penalties if the money is withdrawn before a specific date.
A circuit breaker is a mechanism that shuts off the flow of electricity to certain parts of a building for safety purposes. In investing, the term refers to procedures implemented by stock exchanges to prevent massive, panic-driven sell-offs. The most common of these is a trading halt that goes into effect when a particular index starts dropping significantly in value.
Citizenship test is one of the requirements that must be met for a person to qualify as a dependent on a U.S. tax return. To pass the citizenship test, the dependent must be a U.S. citizen, an adopted foreign child that has lived in the household throughout the tax year, or a resident of Mexico or Canada.
Classic card is the name that VISA uses in reference to its standard credit card.
A classified loan is an approved debt facility that's later identified by bank auditors as troubled or substandard.
Classified property tax
Classified property tax is an assessment system that charges different rates depending on whether the property is commercial or residential.
A clawback is a decrease in value that follows an increase in value. In the stock market, a clawback occurs when a stock's value rises, and then falls shortly thereafter. In personal finance, a clawback occurs when one receives financial benefits which must subsequently be returned because stated contigencies weren't met.
Clean means debt-free.
A clearance sale happens when a retailer discounts prices in order to clear out slow-moving inventory and make room for next season's merchandise.
A clearinghouse is an agency or organization that settles transactions. In banking, a clearinghouse facilitates the exchange of checks and the corresponding settlement of account balances. In futures trading, clearinghouses are responsible for trade settlement as well as reporting trade information, collecting margin funds, and ensuring contract fulfillment. Each futures exchange has its own clearinghouse.
Clearinghouse funds are monies that are in the process of being settled by a central clearing agency. This settlement process often results in a delay between when a check is deposited into an account and when those funds are available for withdrawal.
Client-based describes banking arrangements that allows customers to access their bank records remotely, usually by way of the Internet.
A CLO, or collateralized loan obligation, is a debt security that's securitized by a pool of commercial loans. CLOs allow financial institutions to raise capital and redistribute the risk of the loans to a group of investors. Investors benefit by being able to take a percentage of ownership in attractively priced commercial loan obligations.
Close generally refers to the finalization of a transaction. In real estate, the close is the point in time when ownership is transferred. This transfer typically involves the settlement of mortgage funds from the lender to the borrower, and the settlement of down payment funds from the buyer to the seller. In investing, the close can be either the end of a trading period, or the price for which a stock traded in the final transaction of a given trading period.
A closed fund is a diversified securities portfolio that's no longer accepting monies from investors. Funds might be closed to constrain the asset base to a level where the fund's investing strategy can still be implemented effectively. Sometimes closed funds will continue to accept additional investments from existing investors only.
A closed-account fee is a charge assessed when a customer closes an account. A bank might charge a closed-account fee if a customer fails to keep a line of credit open for a specified time period. Closed-account fees should be defined in the account documentation or loan agreement.
Closed-end credit describes any debt facility that must be paid back in full, with interest, by a specific date. Most closed-end credits require regular principal and interest payments over time. Mortgage loans and auto loans are closed-end, but a revolving line of credit is not.
A closed-end lease is an agreement that allows one party to use a second party's property temporarily without any obligation to purchase the property at a later date. Closed-end leases are common in auto leasing; if the lease is closed-end, the individual leasing the vehicle has the option to return the car at the end of the lease arrangement.
Closed-end management company
A closed-end management company sells shares of its funds or investment portfolios in limited, fixed quantities. The company would make a specific number of shares available to the public through an initial public offering. Once those shares are sold, new investors could only invest in the fund by purchasing shares from existing investors.
A closed-end mortgage is a real estate loan that cannot be increased after the initial funding. The traditional first mortgage is closed-end, because the borrower is not able to borrow more under the same loan.
A close-out sale occurs when a retailer discounts prices in order to sell off discontinued items.
CLTV, or combined loan-to-value ratio, is a borrower's total mortgage debt outstanding divided by the value of the mortgaged property. Total mortgage debt outstanding includes unpaid balances under first and second mortgages. CLTV is expressed as a percentage.
Cluster development is a method of laying out planned developments whereby homes are grouped together in some areas so that other areas can be preserved as open space. Cluster development is intended to balance population density preferences with the desire to maintain some amount of natural, undeveloped land.
CM means compounding method. It designates whether a deposit account compounds interest daily, monthly, quarterly, etc.
A CMG plan is a non-traditional mortgage loan that acts as a debt facility and checking account combined. The borrower deposits her paycheck into the CMG account, and the debt balance is immediately reduced. As the borrower makes payments out of the account for regular expenses and spending, the debt balance is increased. The amount of income that isn't spent each month is applied as a monthly mortgage payment. CMG plans can reduce the duration and interest costs of a mortgage significantly, but they're only appropriate for borrowers who have strong and predictable incomes.
Co-branded cards signify a relationship between a financial institution and another business, or between the financial institution and a card issuer such as American Express or VISA. Businesses such as department stores and airline companies commonly partner with a financial institution to provide a branded credit card that rewards customers with frequent buyer points. Financial institutions partner with the credit card issuers so that cardholders can benefit from wide scale acceptance of the card.
COFI, or cost of funds index, is a weighted average of interest rates paid on checking and savings accounts in Arizona, California, and Nevada. The index is published monthly, and represents the cost of deposit funds for the financial institutions in these states. COFI is used as a base rate, or benchmark, for adjustable-rate mortgages in the western U.S.
Co-housing, also known as cooperative housing and community housing, is a type of residence where families live in separate units, but share certain facilities, such as kitchens and laundry rooms.
Coinsurance is an insurance arrangement whereby the insured party and the insurance provider share costs as defined by the policy documentation. Most health plans incorporate some type of coinsurance arrangement, either by requiring co-payments from the insured, or by requiring the insured to pay a percentage of costs incurred after the deductible is met.
A collateral note is a debt or note payable that's secured by certain assets. If the borrower defaults on the loan agreement, the lender may assume ownership of the pledged assets.
Collateral surety is commercial paper (a short-term investment) that's pledged as security for a loan. If the business defaults on the loan agreement, the lender may assume ownership of the commercial paper holdings.
Collateralized mortgage obligation - CMO
A collateralized mortgage obligation, or CMO, is a type of mortgage-backed security. The defining feature of a CMO is its tranche structure that minimizes prepayment risk for at least one class of investors. For example, a CMO might be issued in three tranches called Class A, B, and C. As the underlying mortgages are paid off (usually refinanced) prior to maturity, Class C investors would be paid out first, followed by Class B investors. Since Class A investors are the last to be paid, they assume the least amount of prepayment risk. The pricing of each CMO tranche or class reflects the corresponding risk level.
Collaterized loan obligation
A CLO, or collateralized loan obligation, is a debt security that's securitized by a pool of commercial loans. CLOs are commonly structured in tranches, which allows prepayment risk to be minimized for at least one class of investors. For example, a CLO might be issued in three tranches called Class A, B, and C. As the underlying loans are paid off prior to maturity, Class C investors would be paid out first, followed by Class B investors. Since Class A investors are the last to be paid, they assume the least amount of prepayment risk. The pricing of each CLO tranche or class reflects the corresponding risk level.
A collection agency is an entity that's in the business of collecting delinquent accounts on behalf of lenders, businesses, or individuals.
Collection float refers to the time between when a check is deposited, and when the associated funds are available for withdrawal. In investing, collection float refers to the quantity of shares outstanding and available for public trading.
Collusion is a secret plan, devised and agreed on by two or more people, to commit fraud.
A comaker, also called a cosigner, is one who assumes full responsibility for a debt if the borrower does not or cannot repay the obligation as promised. Comakers document their acceptance of this responsibility by signing the promissory note.
A combination loan is an arrangement between a lender and borrower to make two separate, but related, loans. As an example, if a property owner wishes to build a home, she could negotiate a construction loan and mortgage loan simultaneously. The construction loan covers the construction costs only; once the home is built, the mortgage loan is funded and used to pay off the construction loan. Another example is the arrangement of two loans for a home purchase; one loan funds the down payment, and a second loan funds the remaining purchase price of the home.
Combined loan-to-value ratio - CLTV ratio
CLTV, or combined loan-to-value ratio, is a borrower's total mortgage debt outstanding divided by the value of the mortgaged property. Total mortgage debt outstanding includes unpaid balances under first and second mortgages. CLTV is expressed as a percentage.
Combined loan-to-value ratio
Combined loan-to-value ratio, or CLTV, is a borrower's total mortgage debt outstanding divided by the value of the mortgaged property. Total mortgage debt outstanding includes unpaid balances under first and second mortgages. CLTV is expressed as a percentage.
A commercial bank is an institution that provides financial services such as deposit accounts, credit cards, loans, and lines of credit. The term might be used to differentiate a traditional bank from an investment bank. It can also be used to describe a banking institution that mainly serves businesses.
Commercial credit is an approved debt facility that allows a business to borrow funds and repay them at a later date.
Commercial finance is the practice of making and servicing loans to businesses. Such loans may or may not be secured by certain business assets.
Commercial lending is the practice of making and servicing loans to businesses. Such loans may or may not be secured by certain business assets.
A commercial loan is an extension of debt provided by a financial institution to a business. The term generally implies a long-term debt, most commonly used for business start-up, expansion, or recapitalization. Other types of commercial debt available include lines of credit, revolving credit facilities, commercial mortgage loans, and commercial bridge financing.
A commercial mortgage is a loan secured by real estate that's used for business purposes.
Commercial mortgage-backed securities - CMBS
Commercial mortgage-backed securities, or CMBS, are bonds that are sold in shares to investors. These bonds are repaid by an underlying pool of commercial mortgages, which provide high rates of return and have low prepayment risk.
Commercial paper is a short-term, unsecured debt issued by large businesses with good credit ratings. Unlike long-term debt issues, commercial paper maturing in 270 days or less doesn't have to be registered with the Securities and Exchange Commission. Businesses use commercial paper to provide short-term liquidity to support regular fluctuations in accounts receivable and inventory. From an investor's perspective, commercial paper is considered relatively low risk.
Commercial property is real estate that's zoned for business use. Examples of commercial property include retail centers, medical facilities, and industrial complexes.
Commercial real estate
Commercial real estate is property that's zoned for business use. Examples of commercial property include retail centers, medical facilities, and industrial complexes.
Commingling is the combining of monies or financial assets from different sources into one account so that they're no longer considered separate property. Business owners, for example, should not mix personal funds with funds owned by the business. In security trading, a brokerage must keep its securities holdings separate from its customers' securities holdings. Commingling is usually not wise, and in some cases, it's illegal.
A commitment fee is a finance charge assessed on committed, but unborrowed, funds. A lender's right to charge a commitment fee is specified within the loan documentation. Commitment fees ensure that the lender is compensated for keeping the approved amount of money on hand for the borrower, even if the borrower never advances any funds.
A commitment letter is a written statement of terms and conditions associated with an offer of credit. The lender provides the commitment lender to the debt applicant after the credit facility has been approved.
A common area is any space within a residential complex that belongs to all owners collectively. A central courtyard in a condominium complex, for example, might be a designated common area.
Common area assessment
A common area assessment is a fee charged to individual owners in a residential complex, which pays for maintenance of collectively owned, collectively used areas within the complex. Funds raised through the collection of a common area assessment might be used to service the swimming pool, repaint corridors, maintain landscaping, etc.
Common law is the body of legal cases that establishes precedent for future legal decisions. In a common law legal system, the decisions of judges can affect or confirm the accepted interpretation of law, or even establish new law.
A common-interest development, or CID, is a residential complex that includes both individually owned areas (or units) and collectively owned, shared areas.
A community bank is locally owned and largely supported by the deposit and lending activities of the local community.
Community Reinvestment Act
The Community Reinvestment Act, or CRA, is federal legislation that encourages banks to provide credit in the same communities where they accept deposits. The law is intended to provide families in low- and moderate-income areas with equal access to credit. CRA was passed by Congress in 1977.
Community Reinvestment Act - CRA
The Community Reinvestment Act, or CRA, is federal legislation that encourages banks to provide credit in the same communities where they accept deposits. The law is intended to provide families in low- and moderate-income areas with equal access to credit. CRA was passed by Congress in 1977.
Comparable value is a measurement of worth based on the selling price of a similar item. In real estate, comparable value is one of the key factors to consider when setting an asking price, with similar, recently sold properties being used as the basis for comparison. In other contexts, such as retail, comparable value is more subjective and less reliable.
Comparables or comps
Comparables, or comps, are similar items that can be used to determine something's value. In real estate, comparables are similar, recently sold properties that are used to establish another property's fair market value. In business finance, the term "comps" is short for comparable same-store sales, which is an indication of sales trends between two reporting periods.
Comparative market analysis
Comparative market analysis is one method used by real estate agents and homeowners to determine the real market value of a property. The analysis involves reviewing recent sales prices for similar properties and making adjustments based on the property's relative condition and amenities.
Competent means capable or proficient. In the legal sense, competent describes one who's legally qualified or able to make binding decisions.
To compound, in the financial sense, is to calculate interest on the combined balance of principal and accrued interest. Simple interest, on the other hand, is calculated on principal only. Compound interest allows for faster accumulation of earnings.
Compounding is the process of calculating interest on the combined balance of principal and accrued interest. The value of an investment increases at a faster rate when previously accrued interest is rolled into the investment's interest-earning balance.
Compounding method refers to the frequency with which accrued interest is rolled into an investment's interest-earning balance. Deposit accounts may compound interest daily, monthly, quarterly, semi-annually, or annually. Although the difference among these methods can be minute for small dollar amounts, greater compounding frequency means a faster accumulation of earnings.
Comptroller of the Currency
The Comptroller of the Currency is a president-appointed official who heads the Office of the Comptroller of the Currency (OCC). The OCC supervises national banks, as well as federal branches and agencies of foreign banks.
In the legal sense, condemnation is government seizure of private property, either for public use, or because the property is unsafe. Property can be seized for public use under the powers of eminent domain; when this happens, the owner receives fair compensation in return.
A condotel is a residential complex of individually owned units that are rented out as vacation properties or hotel rooms. Condotels have the amenities of a hotel, such as a registration desk and daily cleaning service. Owners have the option to earn rental income by placing their unit in the hotel program.
A conduit borrower acts an intermediary for another borrower that doesn't meet the credit qualifications of a lender. The conduit borrower takes out the loan and then relends the funds to the second borrower, usually at a profit.
A confirmation is a formal affirmation of an agreement. In investing, completed buy and sell transactions are documented with confirmations, which specify the date of the trade and the price, fees, and settlement terms.
A conforming loan is a proposed debt facility that meets the lender's standards. Such standards might specify the collateral, the borrower's qualifications, the loan amount, and the repayment terms. Pertaining to real estate loans, conforming mortgages are those that meet federal standards. These loans are eligible for resale to Fannie Mae or Freddie Mac.
Conforming loan limit
A conforming loan limit is a cap on the dollar amount of a loan. Specific to mortgages, the conforming loan limit is an amount set annually by the Office of Federal Housing Enterprise Oversight (OFHEO). Loans made in excess of the limit are called jumbo loans, and aren't eligible for repurchase or guarantee by Fannie Mae and Freddie Mac.
A consent judgment is a binding agreement between two parties of a lawsuit that's made prior to the completion of litigation. Once a judge approves the agreement, the terms of it are legally enforceable.
Conservative investing describes a strategy for purchasing securities that exposes the portfolio to as little risk as possible. Conservative investing might involve the purchase of income securities, such as Treasury bonds, or money market funds. This strategy can be implemented to preserve the value of the portfolio against inflation, but will not produce significant growth.
Conservatorship describes the relationship between one person who's unable to make legally binding decisions. and another person who's been appointed to manage the first person's affairs. The appointed person is called the conservator.
Consideration is something that has value, such as money, property, or services. The term is normally used in reference to a sales contract, where one party provides consideration in return for the item or property purchased.
Consolidated Omnibus Budget Reconciliation Act - COBRA
Consolidated Omnibus Budget Reconciliation Act, or COBRA, is federal legislation giving qualified former employees the right to continue their health coverage under a former employer's group health plan for 18 months. The term COBRA refers either to the legislation itself, or to the actual health plan (as in COBRA insurance).
A consolidation loan is a debt facility that pays off and replaces several smaller debts. Debtors would consolidate their debts to lower their monthly payment burden and overall interest rate. Consolidation loans are also called debt consolidation loans.
Constant proportion portfolio insurance - CPPI
Constant proportion portfolio insurance, or CPPI, is a type of security derivative that guarantees invested funds. The trader or option writer purchases a zero-coupon bond, and uses that to guarantee the invested capital. A dynamic trading strategy is then employed that allocates the investor's funds into two asset classes: a risky asset, and a risk-free asset. The proportion in which the funds are invested is determined by applying a risk multiplier to the difference between the total value and the guaranteed value (or floor). The account is periodically rebalanced, so that (ideally) over time, the account value grows, and more money flows into the riskier asset.
Constitution by laws
Constitution by laws are the rules which govern an organization, homeowners' association, or corporation.
A construction budget is the amount of money reserved for a building project. The construction budget can be one number representing the total amount of funds available for the project, or it can be an itemized list of smaller amounts that are available for specific aspects of the project.
Construction spending is the amount of money used for the development of residential and commercial buildings. The U.S. Census Bureau releases monthly figures for public and private construction spending. The data is used in part to forecast GDP growth.
Constructive receipt is a tax concept that defines when a taxpayer has earned taxable income. Earnings have been constructively received as soon as they're made available to the taxpayer. In the case of interest earned on a deposit account, the interest is constructively received when it's deposited to the account, regardless of when, or if, the taxpayer chooses to remove those funds from the account.
Consumer bankruptcy is when an individual files for protection from creditors with the federal courts. The debts in question are primarily related to the purchase of consumer goods.
Consumer credit is debt incurred to purchase consumer goods and services. Consumer goods and services are non-investment items that depreciate in value rapidly, such as clothes, electronics, vacations, etc. The term can also be used to differentiate personal debt from business debt.
Consumer Credit Protection Act
The Consumer Credit Protection Act is federal legislation that limits wage garnishments and mandates disclosure of certain terms with respect to credit offerings. The Act was passed in 1968 and is best known for containing the Truth in Lending Act (TILA), which requires creditors to provide consumers with understandable, comparable terms for credit offers.
Consumer debt is money borrowed for the purchase of consumer goods and services. Consumer goods and services are non-investment items that depreciate in value rapidly, such as clothes, electronics, vacations, etc. The term can also be used to differentiate personal debt from business debt.
Consumer debts are loans incurred for the purchase of consumer goods and services. Consumer goods and services are non-investment items that depreciate in value rapidly,such as clothes, electronics, vacations, etc. The term can also be used to differentiate personal debts from business debts.
Consumer interest is the cumulative finance charges assessed on personal debts.
Consumer Leasing Act
The Consumer Leasing Act is federal legislation that mandates how leasing costs and terms are disclosed to consumers. The Consumer Leasing Act was put into effect with a 1976 amendment to the Truth in Lending Act (TILA).
Consumer price index
The Consumer Price Index, or CPI, is a statistic that tracks the cost of living in the U.S. CPI is used as an inflationary indicator, with rapid increases indicating inflation, and rapid decreases indicating deflation.
A contingency is a future event that may or may not happen. In the legal sense, a contingency is something that has to happen before a contract or agreement goes into effect. Contingencies are common in real estate contracts; a homeowner who wants to buy a different home may make an offer that lists the sale of the first home as a contingency. This means that the homeowner is not bound to purchasing the second home until the first one sells.
A contingent beneficiary is a person who's designated to receive insurance policy proceeds if certain conditions are met. Usually the contingent beneficiary only receives the proceeds if the primary beneficiary is deceased when the proceeds are to be paid.
A contingent fee is an assessment incurred when a specific event happens.
Continuous compounding is a method of computing interest, where the interest earned is constantly being rolled into the principal balance. Once the interest is rolled into the principal balance, it becomes part of the interest-earning balance.
Contribution, or contributions, are monies deposited into a retirement account.
Contributory value is the amount of value one aspect of a property adds to the value of the property as a whole. A newly remodeled kitchen, for example, might have a contributory value of $50,000.
Conventional loan or conventional financing
Conventional loan, or conventional financing, is a mortgage loan that has a traditional, fixed-rate structure. The terms can also refer to mortgages that aren't insured by federal agencies, like the FHA or the VA. Finally, "conventional" is also sometimes used as a synonym for "conforming," which describes mortgages that are eligible for resale to Fannie Mae and Freddie Mac.
A conversion clause is contractual verbiage that allows an adjustable-rate loan to be converted to a fixed-rate loan. Fees usually apply.
A conversion option is a feature of an adjustable-rate mortgage. It allows the borrower to convert the mortgage into a fixed-rate loan under certain conditions. Not all adjustable-rate mortgages have this feature, and those that do would carry a higher interest rate. The loan documentation would specify when and how the borrower could execute the conversion.
A cooperative mortgage is a loan that the borrower uses to fund a purchase of co-op (cooperative) shares. A cooperative share is an ownership stake in a legal entity that owns one or more residential buildings.
Co-pay is the insured's portion of certain medical expenses, as defined by the insured's health plan. The co-pay is usually structured as a flat fee for a certain service, such as $20 for an office visit and $10 for a prescription.
Core capital is a term defined by federal regulators that pertains to the minimum amount of wealth that a bank must have to operate. Core capital, also called Tier 1 capital, is mainly the value of the bank's shareholders' equity.
A corporate relocation occurs when an employer transfers an employee to another facility, such that the employee must change residences. The employer generally covers the cost of the relocation.
Corrective work, in real estate, addresses items in need of repair or maintenance. A property buyer negotiates the corrective work to be completed, and the seller must complete agreed upon items before the sale closes.
A correspondency system is the interface used by bank agents to originate and manage loans on the bank's behalf. These agents are often called loan correspondents.
A correspondent bank shares its services with another, usually smaller, bank. This relationship allows the smaller bank to provide a larger selection of services to its customers.
To cosign is to take equal responsibility in another person's debt. The person who cosigns (called the cosigner) must repay the debt if the borrower defaults.
A cosigner, or co-signer, is one who agrees to take responsibility for a debt if the borrower defaults. A loan applicant who doesn't qualify for a loan may be able to obtain financing anyway if he can convince a family member to be a cosigner. The presence of a qualified cosigner makes the loan significantly more attractive to the lender.
Cost basis is the original price paid for an investment or asset, including commissions and fees. The cost basis is used to calculate capital gains or losses for tax purposes. The capital gain or loss would be the price for which the investment or asset is sold plus fees, minus the cost basis.
Cost of debt capital
Cost of debt capital is the average rate of interest that a business is paying on all borrowed funds. The cost of debt capital is an important metric for determining the breakeven point on proposed capital projects, where such projects require debt financing.
Cost of funds
Cost of funds is the rate of interest a financial institution is charged for borrowing money. Banks and financial institutions use their cost of funds to set interest rates on money they lend to their customers.
Cost of goods sold
Cost of goods sold or COGS is the direct expense associated with obtaining or producing the inventory that is sold during a specific reporting period.
Cost of living adjustment - COLA
Cost of living adjustment, or COLA, is a change to wages or Social Security income that corresponds to movements in the Consumer Price Index. The Consumer Price Index is a measure of inflation, and the cost of living adjustment is intended to address changes in purchasing power. Generally, cost of living adjustments are additive to wages.
Cost of savings index - COSI
Cost of savings index, or COSI, is a weighted average of interest rates paid on savings accounts. Originally, COSI was based on the rates paid by subsidiaries of Golden West Financial Corporation (GDW) that operated as World Savings. The index was used as a benchmark rate for adjustable-rate mortgages (ARMs). Since World Savings merged with Wachovia, however, the original COSI is still published but no longer used for new mortgages. Wachovia publishes a similar monthly index, called the W-COSI, which is used for new ARMs.
The cost-of-funds index is a measure of the interest rates paid on deposits held within the San Francisco Federal Home Loan Bank District. The index is used as a benchmark for adjustable-rate mortgages (ARMs).
A cost-plus contract is a type of agreement used in construction projects, where the contractor's fee is calculated by applying a certain percentage to the total cost of labor and materials.
Coterminous describes two things that have the same border or boundary. In lending, coterminous specifically means having the same maturity date as another loan. If a borrower takes out a second mortgage, for example, the lender may set the maturity date to be the same as the first mortgage's maturity. Doing so would make the two debts coterminous.
Coupon, in finance, is the stated interest rate of a fixed-income security. If a bond is issued with a stated rate of 5 percent, it's said to have a 5 percent coupon. The term is derived from the usage of tear-off coupons with paper bonds; the bondholder would have to remove and redeem the coupon to receive the periodic interest payment.
A covenant, in a general sense, is a formal agreement. In lending, covenants are promises made by the borrower to meet certain reporting requirements, achieve certain financial metrics, or refrain from performing certain actions. Covenants are clearly defined within the loan documentation.
Covenants, conditions and restrictions (CC&Rs)
Covenants, conditions, and restrictions, or CC&Rs, are legally enforceable rules pertaining to the use of property. Homeowners' associations commonly have CC&Rs, which mandate proper exterior landscaping and maintenance of the home, or restrict neighborhood homeowners from parking unsightly vehicles in their driveways. CC&Rs are generally intended to preserve the property values in the neighborhood.
Coverdell accounts are educational savings accounts that offer tax advantages. Contributions to the account are not tax deductible, but the earnings within the account accumulate tax free. Tax-free withdrawals can also be made as long as the funds are used for qualified educational expenses. There's a cap on the annual contributions allowed.
Coverdell Education Savings Account - ESA
Coverdell Education Savings Account, also known as CESA or ESA, is a tax-advantaged savings program for children under the age of 18. Families contribute to the account with post-tax dollars, but the earnings accumulate without incurring tax liability. Withdrawals are tax-free as long as the funds are used for qualified educational expenses. There's a cap on the annual contributions allowed.
The CPI, or Consumer Price Index, is a statistic that tracks the cost of living in the U.S. CPI is used as an inflationary indicator, with rapid increases indicating inflation, and rapid decreases indicating deflation.
Cramdown is the term describing a bankruptcy court's approval and enforcement of a reorganization plan that's not been endorsed by all of the creditors.
A credit agency collects and maintains debt payment histories of individual and corporate borrowers. Lenders use this information to evaluate a prospective borrower's creditworthiness.
Credit analysis is the evaluation of a prospective borrower's debt application. The process of credit analysis is applied to individual and corporate borrowers; the purpose is to predict how likely the borrower is to repay the debt as promised. In the case of debt securities, investors also follow the tenets of credit analysis to determine the risk involved in purchasing the security.
A credit bureau collects and maintains debt payment histories of individual and corporate borrowers. Lenders use this information to evaluate a prospective borrower's creditworthiness.
A credit card is a plastic payment card that's linked to a revolving credit account. The borrower/cardholder uses the card for payment, and receives an itemized statement of transactions at the end of each reporting period. If the balance is not paid in full by the end of the grace period, interest charges are added automatically to the account.
A credit check is the review of a loan applicant's debt payment history. Lenders perform this review to predict how the applicant will handle the proposed debt obligations.
Credit cliff is a slang reference to the dangers of excessive debt leverage. In business, for example, a highly leveraged company may fall out of compliance with financial covenants and suffer a resulting interest rate increase. That increase could compound the company's financial problems, causing further covenant violations and further rate increases.
Credit default swap
A credit default swap is an arrangement that transfers a lender's risk of nonpayment to another party. The arrangement is made between a lender and a counterparty, based on a debt created between that lender and a third party. The lender makes payments to the counterparty, and in return, the counterparty agrees to guarantee the third party's debt. If the third party defaults, the counterparty pays off the lender and assumes the debt.
A credit derivative is an agreement used to transfer credit risk from a lender to another party. Derivative contracts are financial assets, with the value of the asset being dependent on some outside factor. vIn the case of credit derivatives, the value is derived from the credit risk associated with the underlying debt, i.e., the risk that's being transferred to another party.
A credit freeze is a temporary blocking of an individual's or business's debt payment history as maintained by a credit agency. This is usually done for security purposes. The freeze blocks all access to the specified credit report and score, in order to prohibit the opening of new credit accounts under that identity.
A credit instrument is a document that defines or substantiates a borrower's obligation to repay debt.
A credit limit is the maximum amount of debt available to a borrower under a credit card, charge card, or other type of revolving credit facility. The borrower may apply charges to the account only up to the approved credit limit.
A credit line, or line of credit, is a debt facility that allows the borrower to take cash advances up to a predetermined amount. The term can also be used in reference to the maximum amount of credit available under a particular credit arrangement, as in, "Bob's credit line is $20,000."
Credit monitoring service
A credit monitoring service notifies individuals of certain changes to their credit file. This service helps individuals detect any signs of credit fraud or identity theft before their credit history is damaged.
Credit rating is a generic term for any system that ranks an individual's or business's ability to make debt payments as promised. In consumer credit, the most common credit rating is the FICO score, which is a numerical value lenders use to evaluate a borrower's creditworthiness.
Credit reporting agency
A credit reporting agency collects information on an individual's or business's debt payment history. Lenders use this information to evaluate a prospective borrower's creditworthiness.
A credit squeeze is an economic condition where the availability of loans is dramatically reduced. During a credit squeeze, both individuals and corporations have difficulty obtaining affordable loans.
A credit union is a non-profit organization that provides deposit and lending services. Credit union members share ownership in the organization, and therefore, share in its profitability. Individuals usually qualify for credit union membership by their association with a certain group, such as a labor union or university alumni association. Credit unions, like banks, carry deposit insurance.
A creditor meeting is a gathering that takes place several weeks after a bankruptcy case is filed. The bankrupt debtor and the bankruptcy trustee must attend the meeting, but creditors involved in the case have the option to participate. The creditor meeting is also called a 341 meeting, after the section of the Bankruptcy Code that describes it.
Credits, in accounting, are the amounts that offset debits. Pertaining to an individual's credit card statement, a credit is an amount that reduces the total amount due. In taxes, credits are amounts that reduce one's total tax liability.
Creditworthiness is an individual's or business's ability and willingness to repay debt. When an individual or business submits a loan application, the lender reviews the applicant's qualifications, including credit history and income, and makes an evaluation regarding that applicant's creditworthiness. This evaluation determines if, and on what terms, the loan application will be accepted.
Cross-collateralization occurs when one piece of real or personal property is used as security for two separate loans.
A crossed check is a written draft that can't be cashed; it can only be deposited. Crossed checks can be identified by parallel lines that run across the entire face of the check or in the top left corner. Crossed checks are not widely used in the U.S.
Crowding out is an economic situation where interest rates are rising due to excessive government borrowing. As the government borrows more and more, market interest rates rise, eventually to the point that individuals and businesses can no longer afford to borrow.
Cumulative interest is the combined total of interest expenses associated with a loan over time.
A cure period is a contractually designated timeframe during which a borrower, or party to a contract, can fix a default. If a commercial borrower violates a financial covenant, that borrower can avoid default by getting the business back into compliance before the cure period ends.
Current assets are line items on a balance sheet that represent cash and property that will be converted to cash in 12 months or less. Typical current asset accounts are inventory, accounts receivable, prepaid expenses, and short-term investments.
Current production rate
The current production rate is the highest interest rate allowed on mortgage-backed securities that are guaranteed by Ginnie Mae.
The current ratio is the quotient of current assets divided by current liabilities. Current assets include cash and property that's expected to be converted to cash within 12 months. Current liabilities are debts that are expected to be paid off within 12 months. The ratio provides an indication of a company's liquidity, as well as its ability to pay its short-term debts.
Current year tax
Current year tax refers to taxes payable in the same year. Businesses and high-income individuals often make quarterly tax payments in the year that they are incurred rather than after the tax year ends.
Customer Identification File (CIF)
A customer identification file, or CIF, is a digital set of information about a customer. In banking, a CIF would contain the customer's account and credit data.
Cyberspace describes networks of computers, through which information is exchanged and human interaction takes place, regardless of geographical proximity. Science fiction author William Gibson coined the term in his 1984 novel Neuromancer.