Terms in this set (120)
Single-Payment (Balloon) Loan
a loan that is paid back in a single lump-sum payment at maturity or the due date of the loan, which is usually specified in the loan contract. At that date you pay back the amount borrowed plus all interest charges.
Bridge (Interim) Loan
a short-term loan that provides funding until a longer-term source can be secured or until additional financing is found.
a loan that calls for repayment of both the interest and the principal at regular intervals, with the payment levels set in such a way that the loan expires at a preset date.
a loan that's guaranteed by a specific asset.
a loan that's not guaranteed by a specific asset.
the repayment of a loan using equal monthly payments that cover a portion of the principal and the interest on the declining balance. The amount of the monthly payment going toward interest payment starts off large and steadily declines, while the amount going toward the principal starts off small and steadily increases.
the interest rate banks charge to their most creditworthy or "prime" customers.
a variable-rate loan that can be converted into a fixed-rate loan at the borrower's option at specified dates in the future.
Fixed Interest Rate Loan
a loan with an interest rate that stays fixed but varies based on the market interest rate.
Variable (Adjustable) Interest Rate Loan
a loan in which the interest rate does not stay fixed but varies based on the market interest rate.
an agreement that identifies whether the lender or borrower retains control over the item being purchased.
the failure of a borrower to make a scheduled interest or principal payment.
the formal document that outlines the legal obligations of both the lender and the borrower.
Insurance Agreement Clause
a loan requirement of a borrower to purchase credit life insurance that would pay off the loan in the event of the borrower's death.
a loan requirement stating that if the borrower misses one payment, the entire loans comes due immediately.
Deficiency Payment Clause
a loan requirement stating that if you default on a secured loan, not only can the lender repossess whatever is secured, but if the scale of that asset doesn't cover what is owed, you can also be billed for the difference.
a clause in a loan contract defining what actions a lender can take to claim money from a borrower in case of default.
Home Equity Loan (Second Mortgage)
a loan that uses a borrower's built-up equity in his or her home as collateral against the loan.
a loan with low, federally subsidized rates given to students based on financial need.
Federal Direct (Stafford) Loan
the federal government makes loans directly to the students through the school's financial aid office.
PLUS Direct Loan
the federal government makes loans directly to the parents through the school's financial aid office.
Annual Percentage Rate (APR)
the true simple rate paid over the life of a loan. It's a reasonable approximation for the true cost of borrowing
Loan Disclosure Statement
a statement that provides the APR and interest charges associated with a loan.
Closed-End (Walk-Away) Lease
a vehicle lease in which you return the vehicle at the end of the lease and literally walk away from any further responsibilities. You need merely bring the vehicle back in good condition with normal wear and tear, and the vehicle dealer assumes the responsibility for reselling the vehicle.
an automobile lease stating that when the lease expires, the current market value of the car will be compared to the residual value of the car as specified in the lease.
an apartment building or group of apartments owned by a corporation in which the residents of the building are the stockholders.
a monthly fee paid by shareholders to the cooperative corporation for paying property taxes and maintaining the building and grounds.
a type of apartment building or apartment complex that allows for the individual ownership of the apartment units but not joint ownership of the land, common areas, and facilities.
Planned Unit Developments (PUDs)
a development where you own your own home and the land is sits on, but you share ownership of the development with neighbors and pay a homeowner's fee for common expenses and maintenance.
the amount of money outside of or not covered by mortgage funds that the homebuyer puts down on a home at the time of sale.
Closing (Settlement) Costs
expenses associated with finalizing the transfer of ownership of the house.
Points or Discount Points
charges used to raise the effective cost of the mortgage loan, which must be paid in full at the time of the closing.
Loan Origination Fee
a fee generally one point, or 1 percent of the loan amount. Its purpose is to compensate the lender for the cost of reviewing and finalizing the loan.
Loan Application Fee
a fee, generally in the $200 to $300 range, that is meant to defer some of the processing costs associated with the loan.
a fee for an appraisal of the house which is generally required before a mortgage loan is approved. Although the cost varies depending on the size and location of the house, it can easily run between $200 and $300.
an investigation of the public land records to determine the legal ownership rights to property or a home.
stands for the total of your monthly principal, interest, taxes, and insurance.
a reserve account in which funds are deposited, generally on a monthly basis, and accumulate over time until they are drawn out to pay property taxes and insurance.
a middleman who, for a fee, secures mortgage loans for borrowers but doesn't actually make those mortgage loans. They find the best loan avaliable for the borrower.
someone who originates mortgage loans with funds from other investors, such as pension funds and insurance companies, and services the monthly payments.
Conventional Mortgage Loan
a loan from a bank or S&L that is secured by the property being purchased.
Government-Backed Mortgage Loan
a mortgage loan made by a traditional lender, but insured by the government.
a mortgage loan that can be transferred to a new buyer, who simply assumes or takes over the mortgage obligations. Such a mortgage saves the new buyer the costs of obtaining of new mortgage loan.
Adjustable Rate Mortgage (ARM)
a mortgage in which the interest rate charged fluctuates with the level of current interest rates. The loans fluctuates or is adjusted, at set intervals, and only within set limits.
a clause in a mortgage allowing the borrower to make early cash payments that are applied toward the principal.
the primary interest charged on an ARM, sometimes called the teaser rate. This rate holds only for a short period, generally between 3 and 24 months, before being adjusted upward.
a situation in which the monthly payments are less than the interest that's due on the loan. As a result, the unpaid interest is added to the principal, and you end up owing more at the end of the moth that you did at the beginning of the month.
Balloon Payment Mortgage
a mortgage with relatively small monthly payments for several years (generally five or seven years,) after which the loan must be paid off in one large balloon payment.
Graduated Payment Mortgage
a mortgage in which payments are arranged to steadily rise for a specified period of time, generally five to ten years, and then level off.
Growing Equity Mortgage
a conventional 30-year mortgage in which prepayment is automatic and planned for. Payments begin at the same level for a 30-year fixed-rate mortgage and then rise annually--generally increasing between 2 and 9 percent per year--allowing the mortgage to be paid off early.
Shared Appreciation Mortgage
a mortgage in which the borrower receives a below-market interest rate in return the lender receives a portion of the future appreciations (generally between 30 and 50 percent) in the value of the home.
Interest Only Mortgage
a mortgage with interest only payments for an initial set period (e.g. for 5 years on a 30-year loan) and after this period the borrower pays interest and principal with payments adjusted upward to reflect full amortization over the remaining years of the loan.
Private Mortgage Insurance
insurance that protects the lender in the event that the borrower is unable to make the mortgage payments.
taking out a new mortgage, usually at a lower rate, to pay off your old one.
mortgages taken out by borrowers with low credit scores, at times they come become high-cost loans and borrowers have little chance of paying off.
sharing the financial consequences associated with risk.
a life insurance payment.
statisticians who specialize in estimating the probability of death based on personal characteristics.
Face Amount (Face of Policy)
the amount of insurance provided by the policy at death.
the person whose life is insured by the life insurance policy.
Policyholder (Policy Owner)
the individual or business that owns the life insurance policy.
the individual designated to receive the insurance policy's proceeds upon the death of the insured.
a type of insurance that pays your beneficiary a specific amount of money if you die while covered by the policy.
a type of insurance that has two components: life insurance and a savings plan.
Earnings Multiple Approach
a method of determining exactly how much life insurance you need by using a multiple of your yearly earnings.
a method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death.
Group Health Insurance
health insurance that's sold, usually without a medical exam to a specific group of individuals who are associated for some purpose other than to buy health insurance.
Managed Health Care
insurance plan that entitles you to the health care provided by a specified group of participating doctors, hospitals, and clinics. These plans are generally offered by health maintenance organizations or variations of them.
Traditional Indemnity Plan
an insurance plan that provides reimbursement for all of part of your medical expenditures, in general, it gives you a good deal of freedom to choose your doctor and hospital.
Flexible Spending Account
an employer-sponsored medical plan that allows each employee to have pretax earnings deposited into a specially designated account for the purposes of paying health care bills. The employee can withdraw funds from this account to offset unreimbursed medical or dental expenses or qualified child care expenses.
a government medical insurance plan for the needy.
a government insurance program enacted in 1968 to provide medical benefits to the disabled and those over 65. It is divided into two parts: Part A which provides hospital insurance benefits, and Part B, which allows for voluntary supplemental insurance.
an event or happening, whether human or man-made, that causes a financial loss.
the six standardized "homeowner's" insurance policies available to homeowners and renters.
a type of insurance that covers a specific set of named perils. If a peril isn't specifically named, it isn't covered.
a type of insurance that covers all perils except those specifically noted as excluded.
insurance that protects you against the loss of your property or possessions.
Personal Liability Insurance
insurance covering all liabilities other than those resulting from the negligent operation of an automobile or those associated with business or professional causes.
Insurance Credit Score
a credit score, based on the same information as your traditional credit score, which is used in determining what your home and auto insurance rates will be.
Personal Umbrella Policy
an insurance policy that supplements liability coverage on a homeowner's and/or automobile insurance policy. This insurance kicks in after the homeowner's and/or automobile policy coverage runs out and provides coverage for claims not covered under homeowner's insurance such as libel, slander, and invasion of privacy.
an endorsement that automatically updates the level of property coverage based on an index of replacement costs that continually updates the cost of building a home.
the amount that you are responsible for paying before coverage kicks in.
Uninsured Motorist's Protection Coverage
coverage against injuries caused by a hit-and-run driver or by an uninsured motorist or a negligent driver whose insurance company is insolvent.
a type of auto insurance in which your insurance company protects you in the case of an accident regardless of who is at fault.
an asset that generates a return.
investment return received directly from the company or organization in which you've invested, usually in the form of dividends or interest payments.
an asset whose value depends solely on supply and demand, as opposed to being based on the return that it generates. For example, gold coins and baseball cards are worth more in the future only if someone is willing to pay more for them.
securities whose value is derived from the value of other assets.
a security that gives its owner the right to buy or sell an asset--generally common stock-- at a specified price over a specified period.
a fractional ownership in a corporation.
a payment by a corporation to its shareholders.
the gain on the sale of a capital asset.
the elimination of risk by investing in different assets.
a group of investments held by an individual.
Nominal Rate of Return
the rate of return earned on an investment, unadjusted for lost purchasing power.
Real Rate of Return
the current or nominal rate of return minus the inflation rate.
a term used to describe where financial securities or instruments--for example, common stocks and bonds--are traded.
a market in which newly issued, as opposed to previously issued, securities are traded.
Initial Public Offering (IPO)
the first time a company's sock is traded publicly.
Seasoned New Issue
a stock offering by a company that already has common stock traded in the marketplace.
the middleman between the firm issuing securities and the buying public. This term describes both the firms that specialize in selling securities to the public and the individuals who work for investment banking firms.
an investment banker who purchases and subsequently resells a new security issue. The issuing company sells its securities directly to the underwriter, who then sells the issue to the public and assumes the risk of selling the new issue at a satisfactory price.
an advertisement that provides a listing of the underwriting syndicate involved in the new offering in addition to basic information on the offering.
a legal document that describes a securities issue and is made available to potential investors.
the markets in which previously issued securities are traded.
an exchange that occupies a physical location where trading occurs, such as the New York Stock Exchange.
a market in which transactions are conducted over the telephone or via a computer hookup rather than in an organized exchange.
an attempt to ensure that the investor's strategy reflects his or her investment time horizon and is well diversified, generally with assets in several different classes of investments.
the price at which an individual is willing to purchase a security.
the price at which an individual is willing to sell a security.
American Depository Receipt
a marketable document that certifies a bank holds share of a foreign firm's stock that backs the receipt.
markets in which trading can occur at any time, with prices free to fluctuate as trading occurs.
excessive trading in a security account that is inappropriate for the customer and serves only to generate commissions.
an exchange member who oversees the trading in one or more stocks and is responsible for maintaining a "fair and orderly" market in those stocks by buying or selling his or her own account.
a group of 100 shares of common stock.
an order involving between one and 99 shares of stock.
borrowing stock from your broker and selling it with an obligation to replace the stock later.
an order to sell a security if the price drops below a specified level or buy if the price clubs above a specified level.
an order that specifies a security's trade is to be made only at a certain price or better.
an order to buy or sell a set number of securities immediately at the best price available.
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