Banking Terms

Adjustable-Rate Mortgages (ARMS): Also known as variable-rate mortgages. The initial interest rate is usually below that of conventional fixed-rate loans. The interest rate may change over the life of the loan as market conditions change.  There is typically a maximum (or ceiling) and a minimum (or floor) defined in the loan agreement. If interest rates rise, so does the loan payment. If interest rates fall, the loan payment may as well.

Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market.

Adverse Action: Under the Equal Credit Opportunity Act, a creditor's refusal to grant credit on the terms requested, termination of an existing account, or an unfavorable change in an existing account.

Affidavit: A sworn statement in writing before a proper official, such as a notary public.

Alteration: Any change involving an erasure or rewriting in the date, amount, or payee of a check or other negotiable instrument.

Amortization: The process of reducing debt through regular installment payments of principal and interest that will result in the payoff of a loan at its maturity.

Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans, leases, and other assets. Most ABS are backed by auto loans and credit cards – these issues are very similar to mortgage-backed securities.

At-the-money: The exercise price of a derivative that is closest to the market price of the underlying instrument.