Financial Glossary, Terms & Definitions

Adjustment date
The date when the interest rate changes for an adjustable-rate mortgage.

Adjustment period
The time period between adjustment dates for an adjustable-rate mortgage.

Amortization
A schedule of payments for a loan which includes principal and interest over a specific period.

Amortization term
The amount of time required to amortize the mortgage loan.

Annual percentage rate (APR)
The interest of a mortgage based on a yearly rate.

Annuity
Annuities are retirement savings plans similar to bank savings accounts and CD's. Annuities are issued by life insurance companies and typically offer better interest rates. You pay in so that some day, you will receive pay out.

Appraisal
A written analysis detailing the estimated value of a property prepared by a qualified appraiser.

Appraiser
A person who estimates the value of real property and personal property.

Appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Asset
Anything that carries monetary value. Assets include property, cash, and accounts with financial value such as savings accounts, stocks and bonds.

Balloon mortgage
A balloon mortgage is usually rather short, with a term of five to seven years. At the end of the mortgage, you need to pay off the entire loan.

Balloon payment
The final lump sum payment that you make at the end of the mortgage term.

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

Binder
A preliminary agreement, secured by the payment of a deposit, under which a buyer offers to purchase real estate.

Bond
An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation to pay interest and principle to bond holder.

Bridge loan
A loan that is collateralized by the borrower's current home which is usually for sale which allows the proceeds to be used for closing on a new house before the current home is sold.

Cap
A provision of an adjustable-rate mortgage that limits how much the interest rate or mortgage payments may increase or decrease.

Capital
Wealth, net worth in money and/or property in the form of assets.

Certificate of title
A statement provided by a title company, or attorney stating that the title to real estate is legally held by the current owner.

Chain of title
The chronological history of all of the documents that transfer title to a parcel of property, starting with the earliest existing document and ending with the most recent.

Closing
A meeting where the sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs.

Closing cost item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees.

Closing statement
Generally referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home.

Collateral
An asset that guarantees the repayment of a loan. The borrower may lose the asset if the loan is not repaid.

Comparable properties
Used for comparative purposes in the appraisal process. Similar properties in the area are compared to ensure the value of the appraised property.

Construction loan
Loan for financing the cost of construction. Short-term in nature. The lender makes payments to the builder at periodic intervals as the work progresses.

Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Credit history
A record of an individual's open and fully repaid debts.

Credit report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Debt
An amount owed to another.

Deed
The legal document conveying title to a property to the property owner.

Delinquency
Failure to make mortgage payments when mortgage payments are due.

Deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment when the processing of a loan.

Depreciation
A decline in the value of property.

Dividend
Distribution of earnings to shareholders by a corporation, the amount is decided by the company's board of directors and is usually paid quarterly. Dividends are considered income for tax purposes.

Dollar Cost Averaging
A method of purchasing assets by investing a fixed amount of dollars at set intervals - such as $100 per month. This method automatically buys more shares when the prices are down and fewer shares when the price is up.

Down payment
The part of the purchase price of a property that the buyer pays in as part of the purchase process.

Easement
A right of way giving to persons other than the owner to access a portion or all of the property.

Encumbrance
Any claim or restriction on a property's title.

Endorser
A person who signs ownership interest over to another party.

Equity
A homeowner's financial "ownership" of a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a contractual condition

Escrow account
The account in which escrow is held.

Estate
All assets owned by an individual at death, that are distributed according to the individual's will (or a court ruling if there is no will).

Fair market value
The highest price that a buyer would pay and the lowest a seller would accept.

Fannie Mae
A congressionally created, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA

Fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan. Typically in 15 or 30 year terms.

Flood insurance
Insurance that compensates for physical property damage resulting from flooding. Required in areas where flooding is a regular occurance.

Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property.

Good faith estimate
An estimate of charges in which a borrower will incur in connection with a settlement of property purchased.

Hazard insurance
Insurance protecting against loss to real estate caused by fire & some natural causes and vandalism.

Home equity loan
A loan that is secured by the equity in your home.

HUD
The U.S. Department of Housing and Urban Development.

Index
A published interest rate to which the interest rate on an Adjustable Rate Mortgage is tied. Some commonly used indices include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).

Inflation
An overall rise in the prices of goods and/or services over time.

Investment
The use of capital to create more money. Not to be confused with gambling.

IRA - Individual Retirement Account
A personal, tax deferred, retirement account that an employed person can contribute to annually.

Jumbo loan
Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines.

Lien
A legal claim against an asset which is used to secure a loan.

Lender
The bank, mortgage company, or mortgage broker offering the loan.

Lifetime cap
A provision of an Adjustable Rate Mortgage that limits the highest rate that can occur over the life of the loan.

Lock-in
The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days. Usually a contractual agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time.

Money Market Fund
A type of Mutual Fund that invests in commercial paper, banker's acceptances, repurchase agreements, government securities, certificates of deposit, and other highly liquid and safe securities that pay money market rates of interest usually lower than less liquid accounts. It is very liquid in nature.

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt

Mutual Fund
A pooled investment vehicle whose securities are managed for a fee by a professional investment group.

Origination fee
A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan

Periodic cap
The maximum rate increase for a specific period for a specific loan (ARM) only.

PITI
Principal, interest, taxes and insurance--the components of a monthly mortgage payment.

Points
Charges by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.

Prepayment penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.

Principal
Amount of debt, not including interest.

Private mortgage insurance (PMI)
Insurance provided by nongovernment insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

Qualifying ratios
The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

Refinancing
The process of paying off one loan with the proceeds from a new loan for the same property.

Stock (Equity)
Shares of stock represent a fraction of ownership in a corporation.

Term
The period of time which covers the life of the loan. For example, a 30 year fixed loan has a term of 30 years.

Title insurance
Insurance against loss resulting from defects of title to a specifically described parcel of property.

Title search
An investigation into the history of ownership of a property to check for liens, unpaid claims, or any problems. It proves that the seller can transfer free and clear ownership.

Truth-in-Lending Act
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions. Protects the consumer.

Zero-Coupon bond
he bond is sold at some price below (discounted) its face value and returns full face value at maturity

401(k) Plan
An employer sponsored, tax deferred, retirement plan. It uses pre-tax contributions from an employees regular compensation to invest for that employee in a number of possible financial instruments. Some companies will match investments. Plans vary widely between companies.

403(b) Plan
A tax deferred retirement plan very much like the 401(k) , but the main difference is that the employer is a non-profit organization.