Financial Terms Glossary
Adjustable Rate Mortgage - Also known as an "ARM". A mortgage where the interest rate will change or adjust at predetermined intervals.
Amortization - The reduction of principle and interest on a loan through regular payments.
Annual Percentage Rate - Also known as "APR". The interest rate for a full year.
Appreciation - An increase in the value of an asset over time.
Assets - Any item that has value and can be converted into cash or exchanged.
Balloon Mortgage - A mortgage with a regular monthly payment, but with one large payment at the end of the term.
Bankruptcy - When it is declared through the courts that a person or company is unable to pay its debts. Any assets will be distributed among lenders or creditors.
Bond - A debt issued for a specific period of time at a specific interest rate.
Borrower - A person or company receiving money from a lender.
Capital - The same as assets, an item that can be exchanged for money. Cash is also capital.
Capital Gain - An increase or gain in the value of capital. If an investment from securities to property goes up in value, it is a capital gain.
Capital Gain Tax - Taxes paid on capital gains.
CD - Also known as a 'certificate of deposit'. A contract where a bank or financial institution agrees to repay borrowed funds at a fixed date with a fixed interest rate.
Chapter 11 - A bankruptcy arrangement where the debtor is allowed to keep his business while arranging to pay off creditors in time.
Chapter 7 - Chapter 7 bankruptcy is a mandatory liquidation of assets to lenders/creditors.
Closing - The final stage of a transaction when contracts are signed and assets are exchanged.
Closing Costs - Costs and fees associated with a closing.
Collateral - Assets that are used as security for a loan. When a borrower cannot make payment, the lender can claim the assets used as collateral.
Commission - A fixed fee or percentage paid to a broker or middle man for arranging or setting up a transaction.
Commodity - Raw materials such as food (grain) or minerals (gold) that are traded by investors.
Compound Interest - Interest accumulation over time, on both the principle and previously accumulated interest.
Credit - Money loaned to a borrower.
Debt - Money owed by a borrower.
Default - When a borrower fails to pay a lender.
Depreciation - A decrease in value of an asset.
Diversification - Spreading investments over a variety of investment options to reduce risk.
Dividend - A portion of profits paid back to shareholders.
Equity - The stake or holding a shareholder has in a company, or the value of an asset above any debt owed on that asset.
Escrow Account - A third party account where funds from one person or company are held to pay another person or company.
Fixed Rate Mortgage - A mortgage with a fixed interest rate throughout the entire term.
Foreclosure - When a lender collects the loan collateral after a borrower fails to make payments.
Future Value - The value of an asset(s) at a specified point in the future.
Index - The price or value of a portfolio, used to measure changes in markets.
Index Fund - A fund that is designed to match the movement of a financial market or index, the S&P 500 for example, made up of a representative portfolio of diversified assets or all securities in the index, and not actively managed.
Inflation - The rising price of goods, such that money becomes worth less over time.
Interest Rate - A fee or charge to a borrower that is a percentage of the principle amount borrowed.
Lender - A person or company who loans money to a borrower.
Liability - Financial claims or debt.
Liquidity - Cash or items that can be easily and quickly converted to cash.
Loan - An agreement where a lender gives money to a borrower to be paid back over a specified time frame and interest rate.
Loan Term - The duration of a loan.
Maturity - The end of the loan term.
Mortgage - A real estate loan, where the real estate is collateral.
Mortgage Insurance - Insurance policy for a lender to protect against the possibility of a borrower's default.
Mutual Fund - A portfolio of securities with a manager and investors. Each investor owns a portion of the value of the mutual fund.
Portfolio - A collection of investments.
Present Value - The current value of an asset.
Principle - The initial amount borrowed in a loan agreement, not including interest and fees.
Principle Balance - The amount of principle still owed to the lender.
Property Appraisal - A judgement of the value of a property.
Property Taxes - Taxes charged on the ownership of property.
Rate of Return - Earnings expressed as a percentage of the initial investment or principle, also called return on investment.
Real Estate Tax - Taxed charged on the ownership of property, also called property tax.
Rebalancing - Adjusting your investment allocation to return to your predetermined percentages.
Refinancing - Paying off an existing loan with a new loan.
Return on Investment See Rate of Return.
Rollover - Reinvesting money from one security or loan to a new one.
Roth IRA - An individual retirement account where taxes are not paid on earnings or principle at the time of distribution.
Security - Proof of ownership in an investment, either in paper or electronic form.
Speculation - Risk taking based on the hope of future gains.
Stocks - Shares or stake in a company, where a stock holder is a partial owner.
Title - Proof of ownership.
Traditional IRA - An individual retirement account where tax payments are deferred until the distribution of earnings and principle.
Treasury Bill - US government securities, where the US government agrees to repay the treasury holder at a specific date with a fixed interest rate.
Volatility - A measure of risk, or the degree that the value of a security changes over time.