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.