Earnest money

Funds given to a home's seller by the buyer, usually when the buyer makes an offer for the seller's home. Earnest money is 'good faith' money that indicates that the buyer is seriously interested in the home. If the sale is not completed, the earnest money is usually returned to the buyer (this may depend on the details of the sales contract).

Effective interest rate

The effective interest rate is your true interest-rate cost of borrowing, stated as an annual rate. It may be shown on an after-tax basis, adjusting for a mortgage interest deduction. The effective rate for a mortgage includes fees, points and other charges that you pay at closing. The effective rate also includes compounded interest. Higher closing costs or more frequent compounding will result in a higher effective interest rate.

Electronic Funds Transfer (EFT)

This term is used to describe the computer systems that perform everyday financial transactions electronically. Two common examples are direct deposit of a customer's paychecks into a bank account, and monthly bill payments from a customer to a business. Many gift cards work via EFT, with funds added to the card when purchased.

Escrow analysis

This is a review of a borrower's escrow account. The Real Estate Settlement Procedures Act (RESPA) regulations require that an annual escrow review (disclosure statement) be provided to the borrower within 30 days of the end of the computation year. The computation year begins with the first payment and ends 12 months later. The review determines whether enough funds are being collected to pay future real estate tax and insurance bills. If the review determines that there are not enough funds, the borrower will have to remit additional funds to the escrow account. If the review determines that too much money was collected, the surplus funds are refunded back to the borrower. The monthly escrow payment amount may also be adjusted at this time.

RESPA requires lenders to use the Aggregate method of escrow analysis. The Aggregate method essentially takes all escrowed items and adds them together (including any possible shortages). The total is prorated over 12 months. A running balance is projected including amounts deposited into and disbursements made from the escrow account.

If an escrow surplus is determined, RESPA requires that any surplus greater than $50.00 must be refunded to the borrower. Alternately, the servicer may inform the borrower in the information accompanying the return of the surplus that the borrower may elect to use the escrow refund to reduce principal or have it credited against the next year's escrow payments.

Should the account be delinquent, the borrower must bring the account current to receive the surplus. If an escrow shortage is determined, the borrower has the option of paying the shortage in full or having it prorated for 12 months and included in the monthly mortgage payment. An escrow advance occurs when the escrow disbursements create a negative escrow balance. The lender provides the additional funds necessary to pay the escrow bills.

E-Statement / Electronic Statement

An online version of a traditional mailed bank statement. E-statements help the environment by eliminating paper statements.

Expected Rate

For HECM reverse mortgages, this describes the rate used to determine a borrower's available loan amount. It equals the 10-year rate for U.S. Treasury Securities, plus a margin.