Glossary of Financial Terms

401(k) Plan

A type of "defined contribution" retirement plan in which employees contribute a portion of their wages on a pre-tax basis. The employer usually has some form of "match" contribution and may make additional contributions. Employees usually have some decision-making authority over how the funds are invested.

5/1 Adjustable Rate Mortgage

A 5/1 adjustable rate mortgage (ARM) or 5-year ARM is a mortgage loan where “5” is the number of years your initial interest rate will stay fixed. The “1” represents how often your interest rate will adjust after the initial five-year period ends. The most common fixed periods are 3, 5, 7, and 10 years and “1,” is the most common adjustment period. It’s important to carefully read the contract and ask questions if you’re considering an ARM.

Ability-to-repay rule

The ability-to-repay rule is the reasonable and good faith determination most mortgage lenders are required to make that you are able to pay back the loan.

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage (ARM) is a type of loan for which the interest rate can change, usually in relation to an index interest rate. Your monthly payment will go up or down depending on the loan’s introductory period, rate caps, and the index interest rate. With an ARM, the interest rate and monthly payment may start out lower than for a fixed-rate mortgage, but both the interest rate and monthly payment can increase substantially.

Learn more about how ARMs work and what to consider.


Amortization means paying off a loan with regular payments over time, so that the amount you owe decreases with each payment. Most home loans amortize, but some mortgage loans do not fully amortize, meaning that you would still owe money after making all of your payments.

Some home loans allow payments that cover only the amount of interest due, or an amount less than the interest due. If payments are less than the amount of interest due each month, the mortgage balance will grow rather than decrease.  This is called negative amortization. Other loan programs that do not amortize fully during the loan may require a large, lump sum “balloon” payment at the end of the loan term. Be sure you know what type of loan you are getting.

Amount financed

It means the amount of money you are borrowing from the lender, minus most of the upfront fees the lender is charging you.

Annual income

Annual income is a factor in a mortgage loan application and generally refers to your total earned, pre-tax income over a year. Annual income may include income from full-time or part-time work, self-employment, tips, commissions, overtime, bonuses, or other sources.  A lender will use information about your annual income and your existing monthly debts to determine if you have the ability to repay the loan.

Whether a lender will rely upon a specific income source or amount when considering you for a loan will often depend upon whether you can reasonably expect the income to continue.

Annual Percentage Rate (APR)

An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.

Annual Report

Yearly record of a publicly held company's financial condition. It includes a description of the firm's operations, its balance sheet, income statement and some historical information. The U.S. Securities and Exchange Commission requires a more detailed report called a 10-K which is available from the company.


A form of contract issued by an insurance company. A fixed annuity earns a fixed interest rate for a certain period. Variable annuities have separate accounts similar to mutual funds. Earnings within annuities are tax-deferred until the money is paid out. Additional taxes may be due if the money is withdrawn before age 59 1/2.

Appraisal fee

An appraisal fee is the cost of a home appraisal of a house you plan to buy or already own. Home appraisals provide an independent assessment of the value of the property. In most cases, the selection of the appraiser and any associated costs is up to your lender.


A trading strategy in which one tries to profit from differences in the prices of a security traded on more than one market.

Automated Clearing House

An Automated Clearing House (ACH) authorization is a payment authorization that gives the lender permission to electronically take money from your bank, credit union, or prepaid card account when your payment is due. You can revoke this authorization.

Automatic Debit Payment

With automatic debits, you give your permission to the company to take the payments directly from your bank account. This is different than the recurring bill-pay feature offered by your bank. In recurring bill-pay, you give permission to your bank or credit union to send the payments to the company.

Automatic payment (mortgage)

Automatic payments allow you to set up recurring mortgage payments through your bank. Automatic payments can be a convenient way to make sure that you make your payments on time.

Average Maturity

The average length of time until maturity of bonds held by a mutual fund. Changes in interest rates have greater impact on funds with longer average maturities.

Balloon loan

For mortgages, a balloon loan means that the loan has a larger-than-usual, one-time payment, typically at the end of the loan term. This one-time payment is called a “balloon payment, and it is higher than your other payments, sometimes much higher. If you cannot pay the balloon amount, you might have to refinance, sell your home, or face foreclosure.


The price an investor pays for a security plus any commissions. It is used to determine capital gains or losses for tax purposes when the security is sold.

Basis Points

Refers to the yield on bonds. Each percentage point of yield equals 100 basis points. If a bond yield changes from 7.25 percent to 7.39 percent, that's a rise in yield of 14 basis points.

Bear Market

A bear market is a prolonged period when stock prices generally fall.

Blue Chip

Common stocks of large, solid and well-known companies (e.g., GM, Exxon, GE or Procter & Gamble.)

Bi-weekly payment

In a bi-weekly payment plan, the mortgage servicer is collecting half of your monthly payment every two weeks, resulting in 26 payments over the course of the year (totaling one extra monthly payment per year). By making additional payments and applying your payments to the principal, you may be able to pay off your loan early. Before choosing a bi-weekly payment, be sure to review your loan terms to see if you will be subject to a prepayment penalty if you do so. Check if your servicer charges any fees for a bi-weekly payment plan. You may be able to accomplish the same goal without the fee by making an extra monthly mortgage payment each year.


A fixed-income investment. Bonds are loans to companies or government entities. The issuer of bonds promises to pay interest until the bond matures.

Bull Market

A bull market is a prolonged period when stock prices generally rise.

Capital Gains

When a stock is sold for a profit, it's the difference between the net sales price of the security and its net cost, or original basis. Net capital gains are taxed.

Capital Loss

When a stock is sold for a loss, it’s the difference between the net cost of a security and the net sale price. The deductibility of net capital losses may be limited.

Certificate of Deposit

A deposit for a specific period of time at a bank. The deposit earns interest but there may be a penalty for early withdrawal.

Closing Disclosure

A Closing Disclosure is a required five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage.


The fee paid to the broker to execute a trade. Commissions are usually based on number of shares, bonds, options and their dollar value. Commissions can be charged on the purchase and sale of securities.

Common Stock

Shares of ownership issued by corporations to raise capital. Holders of common stock are entitled to receive dividends and to participate in some corporate decisions such as electing the board of directors. Coupon RateFor bonds, notes or other fixed income securities, the stated percentage rate of interest. Interest on bonds is usually paid twice a year.

Construction loan

A construction loan is usually a short-term loan that provides funds to cover the cost of building or rehabilitating a home.

Conventional loan

A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs).

Co-signer or co-borrower

A co-signer or co-borrower is someone who agrees to take full responsibility to pay back a mortgage loan with you. This person is obligated to pay any missed payments and even the full amount of the loan if you don’t pay. Some mortgage programs distinguish a co-signer as someone who is not on the title and does not have any ownership interest in the mortgaged home. Having a co-signer or co-borrower on your mortgage loan gives your lender additional assurance that the loan will be repaid. But your co-signer or co-borrower’s credit record and finances are at risk if you don’t repay the loan.

Credit history

A credit history is a record of your credit accounts and your history of paying on time as shown in your credit report. Consumer reporting companies, also known as credit reporting companies, collect and update information about your credit record and provide it to other businesses, which use it make decisions about you. Credit reports have information about your credit activity and current credit situation such as your loan paying history and the status of your credit accounts.

Credit report

A credit report is a statement that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Lenders use your credit scores and the information on your credit report to determine whether you qualify for a loan and what interest rate to offer you.

Credit score

A credit score predicts how likely you are to pay back a loan on time. Companies use a mathematical formula—called a scoring model—to create your credit score from the information in your credit report. There are different scoring models, so you do not have just one credit score. Your scores depend on your credit history, the type of loan product, and even the day when it was calculated.

Debt ratio

Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow.

Defined Benefit Plan

A type of retirement plan in which employees receive a certain amount when they retire. The amount of the retirement benefit is usually based on the employee's income level and length of employment.

Deed-in-lieu of foreclosure

A deed-in-lieu of foreclosure is an arrangement where you voluntarily turn over ownership of your home to the lender to avoid the foreclosure process. A deed-in-lieu of foreclosure may help you avoid being personally liable for any amount remaining on the mortgage. If you live in a state in which you are responsible for any deficiency, which is a difference between the value of your property and the amount you still owe on your mortgage loan, you will want to ask your lender to waive the deficiency. If the lender waives the deficiency, get the waiver in writing and keep it for your records. A deed-in-lieu of foreclosure is one type of loss mitigation.

Demand Draft

A demand draft allows someone to withdraw money from your checking account without your signature.


Delinquent is another term for being late on your payments. Your loan can become delinquent when you miss a payment or don’t make a full payment by the due date. After you are delinquent for a certain period of time, a lender or servicer may begin the foreclosure process. The amount of time can vary by state.

Federal rules may also apply to when the foreclosure may start. Learn more about your options if you can’t pay your mortgage.

If you are impacted by the coronavirus

Get more information about mortgage relief options.

Demand feature

The Closing Disclosure has a statement that reads "Your loan has a demand feature," which is checked "yes" or "no." A demand feature permits the lender to require early repayment of the loan.

Deposit Hold

The amount of time a bank or credit union holds funds you deposit by check is sometimes referred to as a “deposit hold” or “check hold”. Some banks or credit unions may make funds available more quickly than the law requires, and some may expedite funds availability for a fee.


Distribution of a portion of a company's earnings to shareholders. Dividends are usually paid in cash and are subject to tax.

Dow Jones Industrial Average

An index of the performance of 30 well-known stocks on the New York Stock Exchange. The Dow Jones Industrial Average is commonly reported as an indication of whether prices on the New York Stock Exchange rose or fell.

Down payment

A down payment is the amount you pay toward the home upfront. You put a percentage of the home’s value down and borrow the rest through your mortgage loan. Generally, the larger the down payment you make, the lower the interest rate you will receive and the more likely you are to be approved for a loan.

Down payment programs or grants

A down payment grant or program typically refers to assistance provided by an organization such as a government or non-profit agency, to a homebuyer to assist them with the down payment for a home purchase. The funds may be provided as an outright grant or may require repayment, such as when the home is sold.

Earnest money

Earnest money is a deposit a buyer pays to show good faith on a signed contract agreement to buy a home. The deposit is held by a seller or third party like a real estate agent or title company. If the home sale is finalized or “closed” the earnest money may be applied to closing costs or the down payment. If the contract is terminated for a permissible reason, the earnest money is returned to the buyer. If the buyer does not perform in good faith, the earnest money may be forfeited and paid out to the seller.


Net income for the company during the period after income taxes, but before dividends.

Earnings per share

Net income for a company for the past 12 months, divided by the number of common shares outstanding. The company often uses a weighed average of shares outstanding over the reporting term.

Employee Stock Owning Plan

A type of qualified plan in which employees can participate in the ownership of the company.


Equity is the amount your property is currently worth minus the amount of any existing mortgage on your property.


An escrow account is set up by your mortgage lender to pay certain property-related expenses, like property taxes and homeowner’s insurance. A portion of your monthly payment goes into the account.  If your mortgage doesn’t have an escrow account, you pay the property-related expenses directly.

Find out more about how the escrow impacts your monthly mortgage payment.

Expense Ratio

For mutual funds, the percent of the assets spent to run the fund. This includes expenses such as management fees, overhead costs and 12b-1 fees.

Fannie Mae

The Federal National Mortgage Association (Fannie Mae) purchases and guarantees mortgages from lending institutions in an effort to increase affordable lending. Fannie Mae is not a federal agency. It is a government-sponsored enterprise under the conservatorship of the Federal Housing Finance Agency (FHFA).

FHA funding fee

The Federal Housing Administration (FHA) requires an FHA funding fee and a monthly insurance premium (MIP) for most of its single-family programs. This upfront mortgage insurance premium is sometimes called an upfront mortgage insurance premium (UFMIP).

FHA loan

FHA loans are loans from private lenders that are regulated and insured by the Federal Housing Administration (FHA). FHA loans differ from conventional loans because they allow for lower credit scores and down payments as low as 3.5 percent of the total loan amount. Maximum loan amounts vary by county.

FHA mortgage limits

FHA mortgage limits are the dollar amount limits for qualifying mortgages that the FHA will insure as part of its single-family home mortgage program. These limits are based upon location and they may be revised each year.


A fiduciary is someone who manages money or property for someone else. When you are named a fiduciary, you are required by law to manage the person’s money and property for his or her benefit, not yours.

Finance charge

A finance charge is the total amount of interest and loan charges you would pay over the entire life of the mortgage loan.

First-time home buyers (FTHB) loan programs

First-time home buyers (FTHB) may use a number of different types of loan programs to purchase their first home. Popular FTHB loans include programs offered by FHA, VA, USDA, Fannie Mae, and Freddie Mac with low down payments. Some programs define a FTHB as someone who hasn’t purchased a home in three years or more.

Fixed-rate mortgage

A fixed-rate mortgage is a type of home loan for which the interest rate is set when you take out the loan and it will not change during the term of the loan.


Forbearance is when your servicer allows you temporarily to pay your mortgage at a lower rate or temporarily to stop paying your mortgage. Your servicer may grant you a forbearance if, for example, you recently lost your job, suffered from a disaster, or from an illness or injury that increased your health care costs. Forbearance is a type of loss mitigation.

Learn more about mortgage forbearance.

Depending on the kind of loan you have, there may be different forbearance options. You must contact your loan servicer to request forbearance. Remember that you will have to make up these missed or reduced payments when your forbearance period is over.

Force-placed insurance

Your servicer may require force-placed insurance when you do not have your own insurance policy or if your own policy doesn’t meet your servicer’s requirements. Force-placed insurance usually protects only the lender, not you. The servicer will charge you for the insurance. Force-placed insurance is usually more expensive than finding an insurance policy yourself.


Foreclosure is when the lender or servicer takes back property after the homeowner fails to make mortgage payments. In some states, the lender has to go to court to foreclose on your property (judicial foreclosure), but other states do not require a court process (non-judicial foreclosure). Generally, borrowers must be notified if the lender or servicer begins foreclosure proceedings. Federal rules may apply to when the foreclosure may start.
If you’re concerned about foreclosure, learn how to get help.

Freddie Mac

The Federal Home Loan Mortgage Corporation (Freddie Mac) is a private corporation founded by Congress. Its mission is to promote stability and affordability in the housing market by purchasing mortgages from banks and other loan makers. The corporation is currently under conservatorship under the direction of the Federal Housing Finance Agency (FHFA).

Good Faith Estimate

A Good Faith Estimate (GFE) is a form that a lender must give you when you apply for a reverse mortgage. The GFE lists basic information about the terms of the reverse mortgage loan offer.

Good `Til Canceled Order

Sometimes called "GTC,” it is an order for the broker to buy or sell stock that remains in effect until it is executed or canceled.

Government recording charges

Government recording charges are fees assessed by state and local government agencies for legally recording your deed, mortgage, and documents related to your home loan.

Guaranteed Insurance Contract

An investment option in a retirement plan that pays a certain interest rate for a stated period. GIC's are issued by insurance companies.

Guardian of property

A guardian of property is someone the court names to manage money and property for someone else whom the court has found cannot manage their money and property alone.


An investment strategy designed to reduce investment risk using "call" options, "put" options, "short" selling, or futures contracts. Hedging is usually used by professional investors and institutions.

Higher-priced mortgage loan

In general, a higher-priced mortgage loan is one with an annual percentage rate, or APR, higher than a benchmark rate called the Average Prime Offer Rate.

HOA dues

If you’re interested in buying a condo, co-op, or a home in a planned subdivision or other organized community with shared services, you usually have to pay condo fees or Homeowners’ Association (HOA) dues. These fees vary widely. Condo or HOA fees are usually paid separately from your monthly mortgage payment. If you do not pay these fees, you can face debt collection efforts by the homeowner’s association and even foreclosure.

Home appraisal

An appraisal is a written document that shows an opinion of how much a property is worth. The appraisal gives you useful information about the property. It describes what makes it valuable and may show how it compares to other properties in the neighborhood. An appraisal is an independent assessment of the value of the property.

Home Equity Line of Credit

A home equity line of credit (HELOC) is a line of credit that allows you to borrow against your home equity. Equity is the amount your property is currently worth, minus the amount of any mortgage on your property. Unlike a home equity loan, HELOCs usually have adjustable interest rates. For most HELOCs, you will receive special checks or a credit card, and you can borrow money for a specified time from when you open your account. This time period is known as the “draw period.” During the “draw period,” you can borrow money, and you must make minimum payments. When the “draw period” ends, you will no longer be able to borrow money from your line of credit. After the “draw period” ends you may be required to pay off your balance all at once or you may be allowed to repay over a certain period of time. If you cannot pay back the HELOC, the lender could foreclose on your home.

Home equity loan

A home equity loan (sometimes called a HEL) allows you to borrow money using the equity in your home as collateral. Equity is the amount your property is currently worth, minus the amount of any existing mortgage on your property.  You receive the money from a home equity loan as a lump sum. A home equity loan usually has a fixed interest rate – one that will not change. If you cannot pay back the HEL, the lender could foreclose on your home.

Home inspection

A home inspection is often part of the home-buying process. You typically have the right to hire a home inspector to examine a property and point out its strengths and weaknesses. This is often especially helpful to test a home’s structural and mechanical systems, including heating, ventilation, air conditioning, and electrical.

Homeowner's Insurance

Homeowner’s insurance pays for losses and damage to your property if something unexpected happens, like a fire or burglary. When you have a mortgage, your lender wants to make sure your property is protected by insurance. That’s why lenders generally require proof that you have homeowner’s insurance. Homeowner’s insurance is not the same as mortgage insurance.

Home purchase price

A home’s purchase price is the amount agreed to by the buyer and seller to be paid to the seller to purchase the home.


The Department of Housing and Urban Development (HUD) is a government agency that helps people get and maintain quality affordable housing. They train and sponsor housing counselors all over the country. A HUD-approved housing counseling agency can provide you with homebuyer counseling to help you understand and evaluate your options.

Find a HUD-approved housing counseling agency.


The index is a benchmark interest rate that reflects general market conditions. The index changes based on the market. Changes in the index, along with your loan’s margin, determine the changes to the interest rate for an adjustable-rate mortgage loan.

Index Mutual Fund

A relatively new type of mutual fund that tries to match the return of a certain index by owning the securities that make up the index. This is a form of passive investment management.

Initial adjustment cap

An initial adjustment cap is typically associated with adjustable rate mortgages (ARMs). This cap determines how much the interest rate can increase the first time it adjusts after the fixed-rate period expires. It’s common for this cap to be either two or five percent – meaning that at the first rate change, the new rate can’t be more than two (or five) percentage points higher than the initial rate during the fixed-rate period.

Individual Retirement Account

A tax-advantaged type of retirement plan for individuals. Contributions are limited, deductibility is limited and earnings within the IRA are tax-deferred.

Individual taxpayer identification number (ITIN)

An ITIN is an identification number that you get from the Internal Revenue Service. An ITIN is only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security Number.

Initial Public Offering

A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital. IPOs are usually considered high-risk investments.

Interest-only loan

An interest-only mortgage is a loan with scheduled payments that require you to pay only the interest for a specified amount of time.

Interest rate

An interest rate on a mortgage loan is the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan. For example, if the mortgage loan is for $100,000 at an interest rate of 4 percent, that consumer has agreed to pay $4,000 each year he or she borrows or owes that full amount.

Interest rate cap

An interest rate cap, sometimes referred to as an annual cap, is the maximum interest rate increase that can occur annually for an adjustable rate mortgage (ARM) even if the rate would have increased more under market interest rates. For example, if this cap is two percent, the new rate can’t be more than two percentage points higher than the previous rate.

Joint account

If you would like to enable a friend or family member to write checks and make deposits on your behalf, you might consider opening a joint account. Generally, everyone whose name is on a joint account can write checks, withdraw money, make transactions, move funds, or close the account. If one of the account holders owes money, the creditor can try to collect it from money in the joint bank account.

Keogh Plan

A special type of retirement plan for self-employed individuals and partnerships. Contributions are tax-deductible, and taxes on earnings are deferred until money is withdrawn.

Lenders title insurance

Lender’s title insurance protects your lender against problems with the title to your property such as someone with a legal claim against the home. Lender’s title insurance only protects the lender against problems with the title. To protect yourself, you may want to purchase owner’s title insurance.

Lifetime adjustment cap

A lifetime adjustment cap is typically used with adjustable rate mortgages (ARMs). This cap determines how much the interest rate can increase in total over the life of the loan. For example, if this cap is five percent, that means the rate can never be five percentage points higher than the initial rate. Some lenders may have a different or higher cap.

Load Mutual Fund

A mutual fund with shares sold at a price that includes a sales charge. Commissions are usually 4 percent to 9 percent of the net amount invested.

Loan assumption

Loan assumption happens when a buyer takes over the mortgage from a seller when they purchase the seller’s home. The buyer takes over the remaining balance owed on the seller’s mortgage, on the original loan terms—for example, the interest rate and the remaining length of the mortgage. A loan assumption might make financial sense when new mortgages are being offered at higher interest rates than when the seller originally took out their mortgage.

The difference between the home’s sale price and the balance on the assumed loan equals the amount the buyer needs to pay, either out of pocket or by taking out their own mortgage loan.

To take over the mortgage, the homebuyer needs to qualify for the loan assumption. Qualifying is usually based on a review of the buyer’s credit and income, similar to qualifying for a new mortgage.

Loan assumption could also apply when you receive the title to a property that has a mortgage – for example, after a death or divorce.

Loan deferment

Borrowers who are struggling to make payments on a mortgage generally have the right to ask the mortgage servicer for help. The servicer can agree to a loan deferment, which allows the borrower to avoid foreclosure by postponing their overdue mortgage payments. The deferred amount comes due when the borrower refinances the loan or sells the home or the mortgage ends in another way.

Loan estimate

A Loan Estimate is a three-page form that you receive after applying for a mortgage.

Loan modification

A mortgage loan modification is a change in your loan terms. The modification is a type of loss mitigation. A modification can reduce your monthly payment to an amount you can afford. Modifications may involve extending the number of years you have to repay the loan, reducing your interest rate, and/or forbearing or reducing your principal balance. If you are offered a loan modification, be sure you know how it will change your monthly payments and the total amount that you will owe in the short term and the long term.

Loan-to-value ratio

The loan-to-value (LTV) ratio is a measure comparing the amount of your mortgage with the appraised value of the property. The higher your down payment, the lower your LTV ratio. Mortgage lenders may use the LTV in deciding whether to lend to you and to determine if they will require private mortgage insurance.

Loss mitigation

Loss mitigation refers to the steps mortgage servicers take to work with a mortgage borrower to avoid foreclosure. Loss mitigation refers to a servicer’s responsibility to reduce or “mitigate” the loss to the investor that can come from a foreclosure. Certain loss-mitigation options may help you stay in your home. Other options may help you leave your home without going through foreclosure. Loss mitigation options may include deed-in-lieu of foreclosure, forbearance, repayment plan, short sale, or a loan modification.

If you are having trouble making your mortgage payments, or if you have been offered and are considering various loss mitigation options, reach out to a Department of Housing and Urban Development (HUD)-approved housing counseling agency.

You can use the CFPB's "Find a Counselor" tool to get a list of housing counseling agencies in your area that are approved by HUD. You can also call the HOPE™ Hotline, open 24 hours a day, seven days a week, at (888) 995-HOPE (4673).


The margin is the number of percentage points added to the index by the mortgage lender to set your interest rate on an adjustable-rate mortgage (ARM) after the initial rate period ends. The margin is set in your loan agreement and won't change after closing. The margin amount depends on the particular lender and loan.

Margin Account

A brokerage account in which the brokerage firm will lend money to help purchase securities. The loan in a margin account is collateralized by the securities in the account. If the value of the stock drops, the owner will be asked to either put in more cash or sell a portion of the stock.

Market Capitalization

The dollar value of the outstanding shares of a company. It is calculated by multiplying the number of outstanding shares by the current price.

Market Cycle

The period between the two latest bull or bear markets.

Market Order

An order to a broker to buy or sell a stock at the existing price.

Money Market Fund

A mutual fund that invests short-term instruments such as Treasury bills, banker's acceptances or Certificates of Deposit. Money market funds are a way to keep funds in a brokerage account, earning interest.

Monthly expenses

This is how much you spend every month. It can include, but is not limited to, recurring obligations like rent or mortgage payments, utilities, car payments, child support payments, and insurance payments, as well as essentials like food. Most of these obligations will have a fixed due date.


A mortgage is an agreement between you and a lender that allows you to borrow money to purchase or refinance a home and gives the lender the right to take your property if you fail to repay the money you've borrowed.

Mortgage closing checklist

A mortgage closing checklist is a list of steps that you can use to prepare and learn what to expect.  It can help you identify key questions to ask ahead of time so that you can close with confidence.

Mortgage closing costs

Mortgage closing costs are all of the costs you will pay at closing. This includes origination charges, appraisal fees, credit report costs, title insurance fees, and any other fees required by your lender or paid as part of a real estate mortgage transaction. Lenders are required to provide a summary of these costs to you in the Loan Estimate.

Mortgage Insurance

Mortgage insurance protects the lender if you fall behind on your payments. Mortgage insurance is typically required if your down payment is less than 20 percent of the property value. Mortgage insurance also is typically required on FHA and USDA loans. However, if you have a conventional loan and your down payment is less than 20 percent, you will most likely have private mortgage insurance (PMI).

Mortgage refinance

Mortgage refinance is when you take out a new loan to pay off and replace your old loan. Common reasons to refinance are to lower the monthly interest rate, lower the mortgage payment, or to borrow additional money. When you refinance, you usually have to pay closing costs and fees. If you refinance and get a lower monthly payment, make sure you understand how much of the reduction is from a lower interest rate and how much is because your loan term is longer.

Mortgage term

The term of your mortgage loan is how long you have to repay the loan. For most types of homes, mortgage terms are typically 15, 20 or 30 years.

Mutual Fund

A type of investment that pools investors' money to invest in a portfolio of stocks, bonds or other securities. The investment decisions are made by the portfolio manager.

Net Asset Value

The value of a mutual fund's investments. The value of all the fund's investments is divided by the number of shares outstanding.

Non-sufficient funds (NSF) fees

An NSF or non-sufficient funds fee may occur when your check or electronic authorization is not paid due to a lack of funds in your account.  This is commonly referred to as a “returned” or “bounced” check.


An investment giving the buyer the right, but not the obligation, to buy or sell stock at a set price on or before a given date. Trading options can be a speculative strategy.

Origination Fee

An origination fee is what the lender charges the borrower for making the mortgage loan.  The origination fee may include processing the application, underwriting and funding the loan, and other administrative services. Origination fees generally can only increase under certain circumstances.


An overdraft occurs when you don’t have enough money in your account to cover a transaction, but the bank pays the transaction anyway. You can overdraw your account through checks, ATM transactions, debit card purchases, automatic bill payments, and electronic or in-person withdrawals.

Many banks and credit unions offer overdraft protection programs in which the bank or credit union generally pays the transaction and charges you a fee (in addition to requiring repayment of the overdraft amount). Overdrafts can also be covered through a transfer of funds from a linked account, credit card, or line of credit.

Owner's title insurance

Owner’s title insurance provides protection to the homeowner if someone sues and says they have a claim against the home from before the homeowner purchased it.

Pace Financing

PACE financing provides a way to fund energy efficiency home improvements.

Partial claim

A partial claim is a way to use mortgage insurance to help a struggling homeowner avoid foreclosure. The mortgage servicer makes a claim against the mortgage insurance for the amount of any missed mortgage payments, and the insurer sets aside the money in a separate account. Then, when the borrower refinances the mortgage, sells the home, or otherwise terminates the mortgage, the partial claim amount is paid out to the mortgage servicer. Sometimes, the partial claim amount does not cover the full amount of the missed payments, and in those cases the borrower must pay the difference.

Payoff amount

Your payoff amount is how much you will actually have to pay to satisfy the terms of your mortgage loan and completely pay off your debt. Your payoff amount is different from your current balance. Your current balance might not reflect how much you actually have to pay to completely satisfy the loan. Your payoff amount also includes the payment of any interest you owe through the day you intend to pay off your loan. The payoff amount may also include other fees you have incurred and have not yet paid.

PCS orders

Active duty servicemembers may be given permanent change of station (PCS) orders. PCS orders are an official relocation of a servicemember (and any family living with them) to a different duty location.  If the servicemember owns a home, they may choose to sell it. If the servicemember owes more on the home than the home is worth, they may have trouble selling their home. Some servicers offer programs to allow servicemembers to sell their home and not have to pay back the rest of the loan balance. Visit servicemember resources for more information.

Personal line of credit

A Personal line of credit is a loan that you access from time to time. You write special checks or request a transfer to your checking account by phone or online.

Like a credit card account, you have a credit limit, receive a monthly bill, make at least a minimum payment, pay interest based on your outstanding balance, and possibly pay a fee each time you use the account.

Personal lines of credit are unsecured, unlike Home Equity Lines Of Credit (HELOCs), which are backed by a mortgage on your home. Personal lines of credit are offered by banks and credit unions and usually require that you also have a checking account with the same institution.


Principal, Interest, Taxes, and Insurance, known as PITI, are the four basic elements of a monthly mortgage payment.


Private Mortgage Insurance (PMI) is a type of mortgage insurance that benefits your lender.  You might be required to pay for PMI if your down payment is less than 20 percent of the property value and you have a conventional loan. You may be able to cancel PMI once you’ve accumulated a certain amount of equity in your home.

Power of attorney

A power of attorney (POA) is a legal document that allows someone else to act on your behalf. Creating a POA is a way to appoint a substitute decision-maker and is relatively inexpensive, although it may involve help from a lawyer.

A financial POA can be used as a tool for planning for future incapacity – the inability to make financial decisions due, for example, to dementia, traumatic brain injury, or some other impairment that affects mental function. When used for advance planning, a POA generally is “durable,” meaning it continues to be effective even if the person creating it becomes incapacitated. Continue reading to learn more about power of attorney (POA).

Prepaid interest charges

Prepaid interest charges are charges due at closing for any daily interest that accrues on your loan between the date you close on your mortgage loan and the period covered by your first monthly mortgage payment.

Prepayment penalty

A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early. If you have a prepayment penalty, you would have agreed to this when you closed on your home. Not all mortgages have a prepayment penalty.

Price/Earnings Ratio

Shows the "multiple" of earnings at which a stock sells. The P/E ratio is determined by dividing current price by the most recent four quarters' earnings per share.


The principal is the amount of a mortgage loan that you have to pay back. Your monthly payment includes a portion of that principal. When a payment on the principal is made, the borrower owes less, and will pay less interest based upon a lower loan size.

Profit Margin

Indicator of a company's profitability. Determined by dividing net income by revenue for the same 12-month period. The result is shown as a percentage.

Property taxes

Property taxes are taxes charged by local jurisdictions, typically at the county level, based upon the value of the property being taxed. Often, property taxes are collected within the homeowner’s monthly mortgage payment, and then paid to the relevant jurisdiction one or more times each year. This is called an escrow account. If the loan does not have an escrow account, then the homeowner will pay the property taxes directly.


A legal document used to sell securities. A prospectus includes a description of the business and the risk factors. It is "required reading" for informed investors.

Qualified mortgage

A Qualified Mortgage is a category of loans that have certain, more stable features that help make it more likely that you’ll be able to afford your loan.

Qualified Written Request (QWR)

A Qualified Written Request, or QWR, is written correspondence that you or someone acting on your behalf can send to your mortgage servicer. Instead of a QWR, you can also send your servicer a Notice of Error or a Request for Information.

Repayment plan

A repayment plan is a structured way to make up your missed mortgage loan payments over a certain period of time. This is a type of loss mitigation. If you have trouble making your mortgage payments, your lender or servicer may allow you to enter into a repayment plan. Before entering into a repayment plan, make sure you understand the requirements of the plan and whether you will be able to make the new payments.

Representative payee

The Social Security Administration (SSA) appoints a person to be a representative payee for another person who needs help managing his or her Social Security or Supplemental Security Income (SSI) benefit payments. A representative payee can only manage the benefit checks paid by SSA. If the person receiving the benefits has other money or property that he or she cannot manage, a representative payee must have legal authority from another source to manage other funds. For example, a representative payee also could be appointed guardian of property by a court. As a Social Security representative payee, you are a fiduciary.

For more information on representative payees, read this guide on managing someone else’s money.

Return on Equity

Indicator of profitability. ROE is determined by dividing net income by common stockholders' equity. The result is shown as a percentage.

Reverse mortgage

A reverse mortgage allows homeowners age 62 or older to borrow against their home equity. It is called a “reverse” mortgage because, instead of making payments to the lender, you receive money from the lender. The money you receive, and the interest charged on the loan, increases the balance of your loan each month. Most reverse mortgages today are called HECMs, short for Home Equity Conversion Mortgage.

Revocable living trust

A revocable living trust is a legal document that gives you the authority to make decisions about someone else’s money or property being held in a trust.

Right of rescission

The right of rescission refers to the right of a consumer to cancel certain types of loans. If you are buying a home with a mortgage, you do not have a right to cancel the loan once the closing documents are signed. However, if you are refinancing a mortgage, you have until midnight of the third business day after the transaction to rescind (cancel) the mortgage contract. The three-day clock does not start until you sign the credit contract (usually called the promissory note), you receive a Truth in Lending disclosure form, and you receive two copies of a notice explaining your right to rescind.


The movement of funds from one qualified retirement plan to another without incurring an income tax liability. The most common rollover is the transfer of funds from a company retirement plan to an IRA when an employee leaves the company.

Sales Charge

The maximum commission charged by a mutual fund when purchasing shares. A 4 percent sales charge on a $1,000 mutual fund purchase will result in buying $960 worth of fund shares.

Second mortgage

A second mortgage or junior lien is a loan you take out using your house as collateral while you still have another loan secured by your house.

Security interest

The security interest is what lets the lender foreclose if you don't pay back the money you borrowed.

Selling Short

If an investor thinks the price of a stock is going down, the investor could borrow the stock from a broker and sell it.

Seller financing

Seller financing is a loan that the seller of your home makes to you.

Sell Stop Order

An order to a broker to sell stock when the price falls to a specified level.


Your mortgage servicer is the company that sends you your mortgage statements. Your servicer also handles the day-to-day tasks of managing your loan.

Your loan servicer typically processes your loan payments, responds to borrower inquiries, keeps track of principal and interest paid, and manages your escrow account (if you have one). The loan servicer may initiate foreclosure under certain circumstances. Your servicer may or may not be the same company that originally gave you your loan.

Shared appreciation mortgage

Under a shared appreciation mortgage, you agree to give your lender a share of any increase in the value of your home.

Shareholders equity

The portion of a company's balance sheet that includes the par value of issued shares, additional paid in capital and accumulated earnings.

Short sale

A short sale is a sale of your home for less than what you owe on your mortgage. A short sale is an alternative to foreclosure, but because it is a sale, you will have to leave your home. If your lender or servicer agrees to a short sale, you may be able to sell your home to pay off your mortgage, even if the sale price or proceeds turn out to be less than the balance remaining on your mortgage. A short sale is a type of loss mitigation. If you live in a state in which you are responsible for any deficiency, which is the difference between the value of your property and the amount you still owe on your mortgage loan, you will want to ask your lender to waive the deficiency. If the lender waives the deficiency, get the waiver in writing and keep it for your records.

Social Security representative payee

A representative payee is appointed by the Social Security Administration for another person who needs help managing their Social Security or Supplemental Security Income benefit payments.

Stock Dividend

Payment of a corporate dividend in the form of additional stock rather than cash. A stock dividend may also be shared in a subsidiary being spun off to the shareholders.

Subprime mortgage

When lenders use the term, they generally mean a loan program for borrowers who do not qualify for a prime loan, often with a higher interest rate.


A survey is a drawing of your property showing the location of the lot, the house and any other structures, as well as any improvements on the property.

Title service fees

Title service fees are part of the closing costs you pay when getting a mortgage. When you purchase a home, you receive a document most often called a deed, which shows the seller transferred their legal ownership, or “title,” to the home to you. Title service fees are costs associated with issuing a title insurance policy for the lender.

Total interest percentage (TIP)

The Total Interest Percentage (TIP) is a disclosure that tells you how much interest you will pay over the life of your mortgage loan.

Total of payments

This number tells you the total amount of money you will have paid over the life of your mortgage.


"TRID" is an acronym that some people use to refer to the TILA RESPA Integrated Disclosure rule.


The Rural Housing Service, part of the U.S. Department of Agriculture (USDA) offers mortgage programs with no down payment and generally favorable interest rates to rural homebuyers who meet the USDA’s income eligibility requirements.

VA fiduciary

A fiduciary is someone who manages money or property for someone else. The Department of Veterans Affairs (VA) appoints VA fiduciaries to manage veterans’ benefits for people who can’t manage the funds themselves.

VA loan

A VA loan is a loan program offered by the Department of Veterans Affairs (VA) to help servicemembers, veterans, and eligible surviving spouses buy homes.  The VA does not make the loans but sets the rules for who may qualify and the mortgage terms. The VA guarantees a portion of the loan to reduce the risk of loss to the lender. The loans generally are only available for a primary residence.


The percentage rate of return paid on a stock in the form of dividends or the rate of interest paid on a bond or note. The yield is calculated by dividing the dividend or interest by the current value. Yield is expressed as a percentage.

Zero Coupon Bond

A bond paying no interest but fully paid off at par at maturity. Zero coupon bonds are bought at a discount to par value. Zero coupon bonds have a higher interest rate risk than bonds that pay interest currently.

Information was sourced from Arvest, Consumer Financial Protection Bureau, and Welch State Bank.