Financial Dictionary




Accounts payable

Accounts payable, or AP, represent money owed by a company or household for goods and services already received. These are short-term debt obligations. Businesses list AP as current liabilities on the balance sheet.

Accounts receivable

Accounts receivable, or AR, represent money owed to a company or household in the short-term for goods and services already provided. Businesses list AR as current assets on the balance sheet.

Accrued Interest

Accrued interest is unpaid interest that accumulates on the principal balance of a loan, adding to the total amount owed in a loan.

Additional principal payment

An additional principal payment made towards the principal balance of a loan. This can enable the borrower’s future interest payments to be reduced. In amortized loans, such as most mortgages and auto loans, most of the early payments go toward principal. If you can make at least one extra payment a year, you can cut the length of a loan by as much as a quarter.

Adjustable-rate mortgage

An adjustable-rate mortgage, or ARM, is a form of financing secured by real estate which carries an interest rate that may change over the life of the loan. The interest rate on an ARM is defined as a variable financial index plus or minus a margin, such as “1-year Constant Maturity Treasury plus 2.5%.”

Amortization schedule

It is a comprehensive schedule of payments tabling the break up of the mortgage amount, interest amount, principle received, and balance due through each period of loan till the loan balances reaches nil.


It is an estimated value of a property, based on a analytical comparison of similar saleable property. See further Appraiser, Assessment, Fair market value


It is the rise in the value of property because of fluctuations in market conditions and other causes like inflation, costs and standard of living.


Any property or possession so owned by an individual that has monetary value is an asset. They include real estate, personal property and debts owed to the individual by others. Liquid assets are those which can be quickly converted into cash like bank accounts, stocks and shares, bonds, mutual funds etc.



Balanced fund

A balanced fund is a type of mutual fund that pursues a hybrid investing strategy. Balanced funds contain a mix of stocks, bonds, and other types of securities in order to offer investors both capital appreciation and income generation.

Balloon mortgage

It is a short term payment with mortgage payments too low to pay off the balance in the specified time. This loan thus requires payment in full usually a lump sum amount, payable earlier than the normal amortization period by paying the balance in a shorter period of say 5-7 years. For example, the amortization period can be 30 years, but the payment will be required to be paid in full at the end of a 5 or 7 or 10 year period through a lump sum or balloon payment.


It is a legally declared inability of an individual or organization to pay their creditors. Bankruptcy is filed in a Federal Court. Bankruptcies are of various types. The most common one however, is the ‘Chapter 7 No Asset’ bankruptcy which relieves the individual/borrower of his debts and liabilities. The borrower remains ineligible for an ‘A’ paper loan for a period of two years after the bankruptcy has been discharged. He is also required to re-establish the ability to repay debt.

Basis point

A basis point is 1/100th of 1 percent. The basis point is often used in reference to interest rates. If the Fed decreases the prime rate from 7.50 percent to 7.25 percent, the rate is said to have gone down 25 basis points.

Bearer bond

A bearer bond is a debt investment that doesn’t have a registered owner, but is considered the property of whoever has it in his or her possession. The bond may have attached coupons that must be submitted to the bond issuer in return for interest payments.

Before-tax income

Before-tax income is the gross earnings of an individual or company prior to the deduction of taxes.


A beneficiary is any individual or legal entity that’s named as an inheritor of funds or property in a bank account, trust fund, insurance policy, will, or similar financial contract.


Bequest is the act of giving property to a beneficiary in a will. The term can also refer to the bequeathed property.

Bill of Sale

the document that concludes the transfer of new property.

Billing cycle

Billing cycle refers to the length of time that passes between statement dates. For credit cards, the billing cycle is commonly one month.

Blended rate

A blended rate is the weighted average interest rate of a loan that charges one rate for part of the debt, and another rate for another part of the debt. In the case of a cash-out mortgage refinancing, some lenders might offer to extend one rate on the portion of the debt that’s already outstanding, and a separate rate on the cash-out part of the loan. The weighted average of the two rates would be the loan’s blended rate. Blended rate can also refer to the weighted average rate of a homeowner’s first and second mortgages.

Blue Book

The Blue Book, also called Kelley Blue Book, is a printed valuation guide that assists vehicle owners, auto dealers, and insurance companies in determining the market value or sales price of a vehicle.


A bond is a loan that’s sold in shares as a security. Corporations and government entities sell bond shares to raise money for special projects, expansion, or simply to cover budgeted expenses. One who purchases a bond is called the bondholder. The terms of the bond specify when and how the bond issuer will repay the principal to the bondholder.

Book value

Book value is the cost of an item or capital asset plus the cost of additions, less depreciation. In the case of financial records, book value is the net amount attributed to an asset on a balance sheet. The term can also refer to the net worth of a company’s common stock equity.

Brokerage account

A brokerage account is a deposit of securities assets held with a brokerage firm. The brokerage firm is an entity that buys and sells securities, for a fee, on behalf of its customers.

Buyer’s remorse

A buyer’s second thoughts after buying a house or other major purchase, a feeling of anxiety or being overwhelmed by the thought of another financial responsibility.



Call loan

A call loan is a debt instrument that gives the lender the right to demand full repayment prior to the scheduled maturity.

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.

Capital gain

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.

Cardholder agreement

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.

Cash advance

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.

Cashier’s check

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.

Caveat emptor

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.

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.

Certified check

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.

Charitable donation

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.

Closing costs

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.


A co-signer, or cosigner, is one who agrees to take responsibility for a debt if the borrower defaults. A loan applicant who does not 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.


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.

Compound interest

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.

Consolidation loan

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.

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 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.


An agreement either written or oral, that qualifies whether a certain thing can be done or not.

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.


The person who constructs or oversees construction of a house or a large renovation.

Conventional Mortgage

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.


A document that transfers title to property. It is also used to affect a transfer, such as a deed, or mortgage.

Cost basis

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 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.


The rejection of an initial purchase offer by submission of another offer with different terms (such as price or closing date).

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 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.

Credit bureau

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.

Credit card

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.

Credit check

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 history

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.

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.

Credit limit

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.

Credit report

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.

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.


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.



A debenture is an unsecured debt security, such as a Treasury bond or Treasury bill. Governments and highly-rated corporations can issue debentures to raise capital. Because there’s no collateral supporting the debenture, investors must feel confident in the creditworthiness of the issuer.

Debit card

A debit card is a plastic payment card that’s linked to a deposit account. Debit cards are accepted for purchase transactions at participating businesses. When the card is presented and approved for payment, the transaction amount is almost immediately deducted from the account balance. Debit cards can also be used at the ATM for funds withdrawals, deposits, and transfers.

Debt-to-income ratio

Debt-to-income ratio, or DTI, is the quotient of a borrower’s minimum debt payments divided by that borrower’s gross income for the same time period. DTI is used by lenders as one factor in the evaluation of risk associated with a debt request. From the lender’s perspective, a higher ratio indicates greater risk.


A debtor is an individual or entity that owes money. Debtors owing money to a bank or lender are called borrowers, and debtors owing money to investors (who have purchased the debtor’s bonds or debentures), are called issuers.


A document or contract of legal bearing with evidence of title to property

Deed in lieu of foreclosure

A deed in lieu of foreclosure is an exchange of outstanding (and usually past-due) mortgage debt in return for full ownership rights to the mortgaged property. A property owner in distress can sometimes avoid foreclosure by negotiating this arrangement with the lender.


Deflation is an economic condition where prices drop throughout a region or economy. Deflation, which is the opposite of inflation, can result from a tightening of the money supply.

Demand deposit

A deposit that can be withdrawn at any time without advance notice. A checking account is a demand deposit account.


A decrease in the value of property or assets. It is used in accounting to show an expense to reduce taxable income. Since it is not an actual expense, only a representation of the decreasing monetary value of a asset in use, lender will add back the depreciation expense for self employed borrowers and take it as income.

Direct deposit

Direct deposit is an electronic transfer of funds into a bank or credit union account. Direct deposit is most commonly associated with wages; in lieu of paper payroll checks, an employer automatically deposits wages into the employees’ personal accounts. The IRS also offers direct deposit of tax refunds.

Disclosure statement

A disclosure statement is any document that spells out the terms of a debt arrangement, or other type of contractual relationship. Financial institutions must provide IRA applicants with a disclosure statement that clearly states the rules of the IRA. Lenders must provide a prospective borrower with a disclosure statement prior to loan funding, so that the borrower has a written explanation of the proposed loan terms.

Discretionary income

Discretionary income is the amount of one’s earnings that’s available for voluntary spending after covering the cost of food, shelter, clothing, taxes, and other essentials.


Diversification is a tenet of conservative investing. It calls for spreading out investment funds among different classes of assets, different industries, and/or different companies, in order to reduce risk.


A taxable distribution or payment of earnings to shareholders as declared by a company’s board of directors. In credit unions, a dividend is the money paid to members for deposits. This is similar to the interest banks pay to their customers for their deposits.

Down payment

The initial and part cash payment towards the price of the property which is not financed by the mortgage.


Eminent Domain

The constitutional right of a government to take over private property for public use. The most common use of this right is for public projects like roads, military installations, and public buildings. The owner of the property is typically given compensation.


Is anything that restricts the fee simple title to property is an encumberance, It could be in the form of mortgages, leases, easements etc.


A legal arrangement whereby money, property, deed, title etc are delivered to a third party or escrow agent to be held in trust pending the fulfillment of a contractual agreement. Once the event occurs, this deposit is returned by the escrow agent to the proper receipient.


Property owned by an individual. All real and personal property owned by an individual at the time of death.

Estimated tax payments

Estimated tax payments are quarterly tax installments paid to the IRS during the year the income taxes are incurred. Taxpayers who don’t have sufficient paycheck withholdings are often required to make estimated tax payments. Examples include self-employed individuals, and those who earn a large amount of investment income.


FICO score

FICO score is a numeric value calculated by Fair Isaac Credit Organization that represents creditworthiness. When lenders talk about credit score, they’re usually referring to the FICO. FICO is calculated by a secret algorithm that considers an individual’s payment history, debt level, and other related factors.

Financial planner

A financial planner is a qualified professional who helps individuals and businesses set financial targets and take the appropriate steps to meet those targets. For example, individuals would seek the services of a financial planner when starting an investment program or when planning for retirement.

First mortgage

It is that mortgage which receives the primary position amongst all loans taken out against a property. In case of the borrower defaulting, it is claimed first. see Second mortgage.

Fixed-rate mortgage

A fixed-rate mortgage, or FRM, is a loan secured by real estate property that accrues interest at the same rate throughout the life of the debt.

Flood insurance

Insurance coverage for damage to physical property due to floods. It is necessary for properties located in federally termed flood areas.


The ability to make interest-only payments on your student loan during a time of financial hardship. If you’re having serious financial difficulty and you don’t qualify for a loan deferment, you can request forbearance.


It is a repossession of property by a legal process due to default on terms of mortgage by the borrower. This property is sold at a public auction, the proceeds of which are used to settle mortgage debt.


Grace period

A mortgage grace period is the time during which a loan payment may be made after its due date without incurring a late penalty.

Graduate payment mortgage

A home loan where the payments start out smaller and gradually increase over the first few years, after that time it remains fixed.



acronym for Home Equity Line of Credit

Home equity line of credit

A variation of a home loan, paid as revolving debt that is backed by the portion of the home’s value that the borrower owns outright. Interest paid on a home equity line of credit can be used as a deductible. This credit allows the homeowner to write checks against the equity on an ongoing basis to pay for multiple expenses rather than one big sum.

Homeowner’s insurance

A policy that includes hazard coverage, loss or damage to property, as well as coverage for personal liability and theft.


The place where one puts their home and is protected by law against forced sale to meet debt.

Household income

The total income of all members of a household. An important calculation when applying for a joint credit situation.


Installment contract

A payment agreement in which the buyer makes a series of payments.

Intangible property

Non-physical or abstract property that does not have value itself, but represents something else. Stocks, bonds and franchises are examples of intangible property as are patents and copyrights.


Additional money paid by the borrower for the use of the money, calculated as a percentage of the money borrowed and paid over a specified time.

Investment income

Your gross income from property held for investment such as interest, dividends, annuities and royalties.


Joint account

A bank account that is owned by two or more persons and who shares in the rights and liabilities of the account.

Joint credit

Credit issued to a couple based on both of their incomes, credit reports, and assets.

Joint liability

When two or more people assume responsibility to repay debt.


a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor’s claim by providing a collateral source.



Late payment fee

A fee charged to the borrower for not making the payment on time.


An agreement where the property’s owner allows a tenant to use the property in exchange for monies for a set amount of time. This may also pertain to an automobile where the borrower uses the vehicle for a set amount of time in exchange for lease payments. At the end of the lease period, the borrower gives the car back to the dealer or arranges to buy the automobile.

Lease option

The right to buy the property for a designated price at the end of the original lease period.

Lease purchase mortgage

An option for a potential homebuyer which will allow you to lease a property with the option to buy. The mortgage is often constructed so that the monthly payment will cover the owner’s rent and a little extra which is put into an account and can be used for a down payment at the end of the lease.


The person who signs for the lease.


The person who is granting a lease.


All of the borrower’s debts and legal obligations.

Line of credit

The maximum amount a financial institution is committed to lend to a borrower during a designated time period.

Loan origination fee

A fee assessed by the lender for underwriting a loan. This fee covers the time and preparation associated with the inception of a new loan.

Loan term

The period of time in which the borrower has to repay the loan as specified in the original loan contract. Auto loans are typically 4 years, whereas mortgages have a loan term of 15 or 30 years.

Loan to value ratio (LTV)

It is the ratio of the home loan taken to the appraised value or the sale price, whichever is lower. Lower the LTV, better are the terms offered to the borrower.


Market value

The price that a property is worth based on an agreeable situation between ready buyers and content sellers who have disclosed all the facts about the property.

Millage rate

Millage rate, or mill rate, is a property tax term referring to the amount of tax charged for each dollar of a property’s assessed value. The rate is expressed in mills, where one mill equals one-tenth of one cent, or $0.001.

MLS (Multiple Listing Service)

A shared list of information and details on properties that are available in certain areas.


A change in the terms of the loan or mortgage agreement.

Money market account

An FDIC insured deposit account that allows a maximum of six monthly withdrawals. This allows these accounts to remain liquid and are known as stable accounts because they invest in short term debts with maturities of under a year.

Money market mutual fund

A fund that invests in short term paper debts, designed to produce high yields without the loss of capital.

Mortgage bond

A mortgage bond is a corporate debt instrument that’s supported by real estate property collateral. Bondholders have a claim on the collateral property if the corporate borrower defaults.

Mortgage debt

Mortgage debt is outstanding principal on a loan that’s backed by residential real estate collateral.

Mortgage insurance

Insurance that protects the lender from incurring losses against non-payment of home loans. This is required for loans that have an LTV in excess of 80%. When the LTV is more than 80%, the borrower pays higher interest rate to the lender who then pays the premium to the mortgage insurance directly. Certain loan programs like first time home loans are covered by MI irrespective of the LTV percentage.

Mortgage life insurance

A life insurance policy taken out specifically to pay off a mortgage of the property if the owner dies.

Mortgage loan

A mortgage loan is a debt instrument that’s secured by real estate property. The terms mortgage loan and mortgage are used interchangeably.

Mortgage refinance

The option to pay off an old loan with a new one. This typically saves the borrowers money in terms of a lower interest rate or lower payments. The borrower may also opt to get cash out of his or her equity.

Mutual fund

A mutual fund is a professionally managed portfolio of securities that builds capital by selling shares to investors. Mutual funds give the individual investor access to a diversified, regulated portfolio. The fund publishes its investment strategy and objective along with its historic performance in a prospectus. Gains or losses in the portfolio are shared by the shareholders/investors.


Negative amortization

This happens when the interest due on the loan is more than the monthly payments. The balance unpaid interest is added to the balance of the loan. In negative amortization the loan of the borrower increases and thus he ends up owing more than the original loan.

Negative equity

Negative equity occurs when the value of an asset securing a loan dips below the loan balance. For example, an individual could take out a mortgage loan to finance 100 percent of a home purchase. If the home’s value subsequently drops, due to recession, for example, the homeowner would have negative equity. Selling the home would require the homeowner to pay out of pocket to cover the difference between the sales price and the loan balance.

Net worth

The total sum of all of your assets minus all debts. Assets include your home, car, investments, etc. Debts include mortgages, credit cards, and loans.



Overdraft occurs when drafts or withdrawals exceed an account’s available balance of funds. The term is used interchangeably with “insufficient funds.” Overdraft can also mean an immediate credit extension, such as when there are insufficient funds in an account and the bank must extend credit to cover pending drafts.

Overdraft protection

Overdraft protection is a service offered on checking accounts. When a customer has it, the banking institution will pay presented checks, even if the funds available in the account aren’t sufficient to cover the check amount. There’s usually a fee associated with overdraft protection, as well as a per-check fee, when an overdraft situation occurs.

Owner financing

Purchase of property where the finance is provided in whole or part by the seller.


Power of attorney

A legal document that authorizes one person to act on behalf of another. There can be a General POA granting compete authority or a specific POA for a specific act or for a certain period of time.

Prepayment penalty

A penalty or fee charged for payment of the loan amount before the due date.

Prime rate

The interest rate that a bank charges its most reliable customers who are the least likely to default on their loan.


The actual value of a mortgage or note borrowed or the balance left of a loan not taking into account any interest.

Principal, interest, taxes, insurance – PITI

Principal, interest, taxes, insurance, or PITI, are the different parts of a complete mortgage payment. Principal is the amount applied to the debt balance, interest is the monthly accrued financing charges, taxes are pro-rated amounts applied to the annual tax bill, and insurance is the mortgage insurance premium.

Private mortgage insurance (PMI)

It serves to protect lenders against defaults or losses from borrowers. Borrowers are required to carry Private Mortgage Insurance if their loan has loan -to-value percent higher than 80%. Depending on the type of loan the borrower will have to pay an initial premium and a monthly premium.

Property tax

A tax assessed by the state or local government on real estate and personal property whose amount varies depending on the property’s value and the various services provided to the property. Property taxes are most often paid into an escrow account and the lender is responsible for paying the taxes when it is due.

Purchase agreement

A contract in which the buyer and seller approve the price and other terms of the transfer of title. This contract is required when you apply for the loan. Also called an agreement of sale, a purchase contract or a sale contract.


Quitclaim deed

The document that transfers the ownership of a title to property and is filed with the government. It often is used among family members and can be used to clear up a gap in the chain of title or inheritance questions.


Real property

Unmovable property, like buildings and land.

Reverse mortgage

A type of loan that allows seniors homeowner to use the funds from their built-up equity. There are no payments due until the borrower moves, dies, or the property is sold. The final payment will not exceed the proceeds from the sale of the home.

Reverse-annuity mortgage

Reverse-annuity mortgage is a type of real estate property loan that provides a stream of income payments to an elderly homeowner. These income payments are guaranteed until the borrower passes away. Debt repayments are not required until the borrower no longer lives in the home; at that time, the lender gains ownership of the home and sells it to recover the funds borrowed.

Revocable trust

Revocable trust is a legal entity created to hold assets that allows the grantor of the trust to make changes to certain trust provisions. Income generated by trust assets are usually distributed to the grantor during her lifetime; after the grantor passes away, the assets are distributed to the trust beneficiaries.

Right of first refusal

The agreement by an owner to give another party an opportunity to buy the property before offering it to anyone else.

Right of rescission

A right which allows a borrower to change his or her mind and cancel a loan within three days. Applicable to auto, home loans and refinancing.

Roth IRA

A Roth IRA is a type of tax-advantaged retirement savings account available in the U.S. Contributions to a Roth IRA are made with after-tax money, but earnings and qualified withdrawals are tax-free. Qualified withdrawals can’t be made until the account has been open for five years and the accountholder reaches aged 59 1/2. Roth IRAs are subject to annual contribution limits and income limitations.

Rule of 72

Rule of 72 is a means of estimating how many years it will take to double an investment that’s earning a certain interest rate. To make the calculation, divide the compound interest rate by 72. A 10 percent interest rate, for example, will double an investment in 7.2 years.


Savings account

Savings account is a bank or credit union deposit that earns interest and can be withdrawn on demand.

Second mortgage

A mortgage made subsequent to the previous one or subordinate to the first one. The lenders of the second mortgage gets paid after the first mortgage is paid.\n\nSee further First mortgage

Secured debt

Secured debt is a loan that’s supported by collateral. Mortgages are secured, because the lender takes a lien on the property, and has the right to foreclose in a default situation. Auto loans are also secured, because the lender takes a lien on the vehicle.

Short-term bond fund

Short-term bond fund is a mutual fund that invests in debt securities that mature in five years or less.

Signature loan

Signature loan is another name for an unsecured personal loan. This type of loan is made on the strength of the borrower’s credit rating and history, and no collateral is pledged. Banks may offer signature loans to their wealthy, long-standing customers.

Simple interest

Interest computed only on the principal balance, without compounding.

Speculation home or spec home or built on spec

Speculation home, spec home, and built on spec all refer to a home that is built before a buyer is secured. The developer makes the investment to build the home on the belief that a buyer will be found.

Subprime borrower

Subprime borrower is a debtor who has a low credit score due to poor management of credit accounts in the past.

Subprime lender

A subprime lender is a financial institution that specializes in making loans to lesser-qualified borrowers. Subprime lenders charge more to make these loans, because there’s a higher risk of default.


To subrogate is to substitute one party for another with respect to a legal claim. When a collection agency takes responsibility for a debt on behalf of a client, for example, subrogation occurs.


Tax deferred

Earnings and income that are not taxable now but will be at a later date. This is most common in retirement plans distributions.

Tax exempt

The part of your income that is not taxable or subject to tax.

Tax-free money market mutual fund

Tax-free money market mutual fund is a diversified investment fund that invests only in short-term, tax-exempt securities. These funds are usually purchased through brokers and provide income that’s free from federal tax liability.

Tax-sheltered annuity

Tax-sheltered annuity is a type of retirement planning instrument available to employees of tax-exempt organizations. Contributions are tax-deductible and earnings within the annuity aren’t taxed until withdrawn.

Tenancy in common

Tenancy in common is a co-ownership arrangement that gives each owner the right to have his ownership interest transferred, upon his death, to a beneficiary. While living, both owners have an equal right to use the property.

Tenancy by entirety

Tenancy by entirety, or TBE, is a property ownership arrangement used in some states by married couples. If the couple owns a home as tenants by the entirety, neither one of them can dispose of his or her ownership interest, and when one co-owner passes, ownership automatically transfers to the surviving co-owner.

Term deposit

Term deposit is a savings product that can’t be withdrawn until a specified amount of time has passed. The most common term deposit is a CD, which pays a higher yield than a liquid savings deposit.

Testamentary trust

Testamentary trust is a property ownership arrangement that’s established according to instructions within a will, and after the grantor has died. Generally, the trust will hold the decedent’s property. An appointed executor must manage the property and make distributions to beneficiaries in accordance with the grantor’s wishes.

Treasury bill or Treasury note

Treasury bill, or Treasury note, is short-term debt security that’s issued and backed by the U.S. government. Treasury bills are sold at a discount, so that the value of the bond increases as the maturity date approaches. Investors realize yield by purchasing the bond at a discount, and then selling it for a higher price at a later date.


Similar to a will. A relationship where a person transfers valuables or assets to a trustee who manages this property for the benefit of the beneficiary.

Truth-in-lending act

Disclosure in writing the terms and conditions of mortgage charges and annual percentage rate (APR) as required by the federal law.


Unsecured loan

advance of money that is not secured by collateral.

Upside down

An unwanted financial position that consumers find themselves in when the outstanding balance of a loan is higher than the current fair market value of the property.


Illegal and excessive interest.


Variable rate mortgage

A mortgage in which the interest rate is changed periodically based on a financial index. Also referred to as an adjustable-rate mortgage.


Wealth management

Wealth management is a comprehensive planning service that incorporates all aspects of personal finance, such as tax planning, estate planning, investment planning, legal planning, etc.


A will is a legally binding document in which an individual specifies how he would like his property distributed after his death. The will can also specify a guardian for dependents and an executor for the estate.


A mortgage in which basic terms: interest rate, term and monthly payment, have been altered to prevent a foreclosure.




Zeros – Zero-coupon CDs

Zeros, or zero-coupon CDs, are time deposits that pay interest at maturity, rather than at regular intervals.

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