Adjustable-rate mortgage (ARM) - This is a type of mortgage in which the interest rate and payment changes periodically in relation to the fluctuation of a specific financial index. The rate can go up or down according to the prevailing financial conditions. Most ARMs are capped, setting a limit on the interest rate.
Amortization - This is the process of gradually reducing the amount owed on a debt by making periodic payments. The principal as well as the interest are usually paid in monthly instalments.
Amortization Table - A time table that gives a gradual decline in the debt you owe, showing a breakdown of your monthly repayments into principal and interest.
Amortization Term - This is the length of time required to pay off a loan, normally measured in months.
Annual Fee - A fee charged annually by the lender or creditor for the maintenance of your account.
Annual Adjustment Cap - The variable interest rate on the loan has a limit on how much it can increase or decrease in a year.
Annual Income - The total amount of income earned in one year.
Annual Percentage Rate - APR is the rate of annual interest charged, that is calculated as a percentage of the loan.
Application Fees - These are non-refundable fees charged when applying for a loan, which may cover costs such as a credit report or property appraisal.
Appraisal or Appraised Value - Otherwise known as a property valuation, this is an estimate of the value of the property performed by a licensed appraiser.
Appraisal Fee - A charge made for the estimating of the value of the property.
Appreciation - This is the amount, by which a property has increased in value or price overtime, therefore adding to the homeowner’s equity. Factors such as location, property condition and market demand will affect the home’s appreciation.
Assets - An asset is a possession that has a value in exchange that can be used as collateral to secure repayment of debt.
Assumable - This is a mortgage loan that can be transferred from the seller to the purchaser of the home without a change to the terms.
Available Funds - These are funds that may be used for immediate use.
Bad Debt - A debt worthless to the creditor as it can not be collected.
Balance Sheet - A balance sheet is a financial report that shows a company’s assets, liabilities and net worth as at a specific time.
Balloon Loan - This is a short-term loan in which you pay smaller monthly payments prior to paying a lump sum at maturity, otherwise known as a balloon payment.
Bankruptcy - An individual who has been declared bankrupt has been served an order by court as a result of not being able to pay off their debts. The petition can be filed by the creditor or an individual and a record of the filing can appear for up to ten years on the borrower’s credit report.
Base Rate - An interest rate used as a basis to price loans such as an adjustable-rate mortgage, auto loan or credit card, sometimes known as an index rate.
Basis Point - This is a unit that is equal to 1/100th of a percentage point.
Bi-weekly - A bi- weekly payment option offered by some loans allows you to pay your loan off quicker by paying every other week and as a result the mortgage is paid off in less time.
Breach - This is the violation of any legal obligation.
Bridge Loan - Temporary credit provided as a short-term loan until a more permanent credit is established.
Broker - A broker acts as a middleman between the buyer and seller, this maybe arranging funding or negotiating a contract of which are done for a fee or commission.
Business Plan - The ability to project an organisation’s present and future plans for several years showing future opportunities addressing both strategic and operational issues in order to enable it to achieve any goals.
Buydown - This is a prepayment by the seller, buyer or a third party to the lender to reduce the monthly repayments due to obtaining a lower interest rate for the first few years. A buydown is usually for the first one to five years of the loan.
Cap - A cap is the limit on how much a variable interest rate can increase.
Capital - Capital is the amount of cash and other assets owned by a business.
Capitalized Cost - This is the total value financed under a lease agreement.
Capitalization - This is the long-term debt and/or equity such as stock and retained earnings that fund a firm’s assets.
Capital Markets - The Capital Market is where public/private institutions, such as companies and governments can exchange debt or equity securities. These are generally medium to long-term. Long-term financial instruments traded in the market may include stocks or bonds.
Cash Flow Financing - Cash flow financing is where the companies expected cash flow is used to back up a short-term loan.
Closing - Otherwise sometimes known as a settlement, where all the legal documents are signed, notarized and dated to complete an investment.
Closing Costs - These are the funds needed at the time of closing or settling a loan and are sometimes known as ’settling fees’. These can include legal fees, taxes, mortgage application charges, taxes and costs for title insurance and title search.
Co-borrower - A co-borrower is an additional borrower on the loan, having equal responsibility under the loan terms.
Collateral - These are assets, such as a home or car, which are used to secure the repayment of a loan. If repayments are not made the borrower is at risk of losing such assets.
Combined loan-to-value ration (CLTV) - This is a ratio, used by lenders, that measures the risk of a homeowner going into default if the home purchase is being funded by more than one mortgage. The ratio, expressed as a percentage, is worked out by dividing the total value of all mortgages (first mortgage and a home equity loan or line of credit) by the appraisal value of the property.
Commission - This is fee charged by the negotiating broker or agent to the borrower. The fee is generally calculated as a percentage of the price of the property or loan.
Condominium or Condo - This is the individual ownership of a unit of a building but the land and common areas of the building are shared by all owners.
Conforming Loan - A conforming loan is one that conforms to GSE (Government Sponsored Enterprises) guidelines such as Frannie Mae and Freddie Mac.
Contingency - Contingency is a condition specified in a sales contract before home sale can occur such as a satisfactory home inspection or the buyer obtaining finance.
Contract - This is a legal binding agreement between two or more parties to do or not to do a certain act.
Co-signer - A co-signer is a person who becomes equally liable on the loan by signing a contract but does not benefit from the loan in any way.
Cost Benefit Analysis - This is the comparison of the benefits of owning a home to the costs of a home.
Covenant - A covenant is a signed written agreement or promise by two or more parties to do or not to do a certain thing.
Credit - This is an arrangement in which a borrower is able to defer payments of something that has a value.
Credit Reporting Agency or Credit Bureau - For a fee, lenders or any other authorised users are able to use this agency to gather information regarding individual public and financial records.
Credit History - A credit history will help a lender establish whether a borrower is a business risk or not by giving a record of an individual’s debts and payment habits over a period of time.
Credit Limit - This is the maximum amount that you are able to borrow on credit by a financial institution or other lender.
Credit Report - A credit report is a record of an individual’s debts and payment habits.
Credit Score - This is a three digit numerical score used to determine an individual’s credit worthiness. Credit scores, often calculated with a computer system such as FICO (Fair Isaac Co.) help the lender decide whether or not to extend credit as well as the interest rate.
Creditor - A creditor is a person or company to whom money is owed by a debtor.
Creditworthiness - Creditworthiness is the likeliness of the borrower to be able to repay the debt.
Current Asset - Current assets are those that can be turned into cash within a year.
Current Liability - This is liability that can be paid within a year.
Current Ratio - A current ratio is a measurement of a business’s liquidity that is calculated by dividing current assets by current liabilities.