Financial Glossary

Actuary - an employee of the insurance company who calculates probability to determine premiums and other factors.
Agent - a licensed representative of a real estate or insurance company who offers their products.
Applicant - the person who wants to apply for a loan or insurance policy.
Application - the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Amortization - gradual repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years)
Annual Percentage Rate (APR) - calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.
Appraisal - a document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Appraiser - a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
ARM - Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in the monthly payment amount, however, is usually subject to a Cap.
Assessor - a government official who is responsible for determining the value of a property for the purpose of taxation.
Bankruptcy - a federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Balloon Loan - a mortgage in which the term is rather short: generally 3-5 years, but the payments are based on a term up to 15 years. As a result, the final payment due is the lump sum of the remaining principal.
Beneficiary - the person or organization whom the insured has selected to receive the proceeds of an estate or death benefit from life insurance
Benefit - the proceeds paid to the policy beneficiary when the insurance claim is approved.
Borrower - a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Cash-Flow - one of the most important words in money, often used to describe the excess between income and expenses.
Cash Reserves - a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Cash Value - the amount of money that builds inside of a whole life insurance policy. Also known as the "policyowner's equity" or "cash surrender value," the policyowner can borrow against the cash value of the policy or receive this amount if the policy is surrendered.
Certificate of Title - a document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Claim - a request for payment, usually by the beneficiary, under the terms of the insurance policy.
Closing - also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.
Closing costs - customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.
Commission - an amount, usually a percentage of the sales price that is paid to agents as a fee for negotiating the transaction.
Contestable Period - length of time, usually two years, during which the insurance company may rescind a policy based upon the application.
Credit Score - a number representing the possibility a borrower may default on their loan. In today’s world, your credit score in invaluable. It is based upon credit history and is used to determine ability to qualify for insurance and loans.
Debt-To-Income Ratio - a comparison of gross income to housing and non-housing expenses. Generally, the monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Deed - the document that transfers ownership of a property.
Default - the inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms. Delinquency - failure of a borrower to make timely mortgage payments under a loan agreement.
Discount Points - discount points are paid to reduce the interest rate on a loan.
Dividend - a share set by an insurance or stock company in its’ profits that is paid to policy and stock holders.
Down Payment - the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.
Earnest Money - money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.
Equity - an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.
Escrow Account - a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc
Exclusion - a restriction placed in a policy or contract which limits the coverage.
Face Amount - the amount that would be paid to the beneficiary in the event of the Insured's death, excluding additional insurance purchased using policy dividends or accidental death benefits, and providing premiums are paid on time and no policy loans are outstanding at the time of death. In Universal Life policies, the face amount may vary if the premiums paid are insufficient to support the death benefit.
Foreclosure - a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Good Faith Estimate (GFE) - an estimate of all closing fees including pre-paid and escrow items as well as lender charges.
Grace Period - the amount of time after which a premium or payment is due, but not paid, in which a policy or contract may stay in effect.
Home Service - system used to sell Monthly Debit Ordinary life insurance. MDO policies are serviced by life insurance agents who call at the policyowner's home to collect the premium.
Insured - the person whose life is covered under an insurance policy. Insurer - the insurance company which issued the policy.
Insurable Interest - at the policy inception, the beneficiary is determined to have a close family relationship and/or an economic interest in the life of the insured.
Leverage - the utilization of resources to improve outcome.
Loan-To-Value (LTV) - a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.
Lock-In - interest rates change frequently and an interest rate lock-in guarantees a specific interest rate if the loan is closed within a specific time.
Margin - an amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.
Mortgage - a lien on a property that secures the promise to repay a loan.
Mortgage Insurance - a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price.
Offer - indication of a willingness to purchase or sell at a specific price; generally put forth in writing.
Origination - the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination Fee - the charge for originating a loan. Usually calculated in the form of points and paid at closing.
Par value - also called the maturity value or face value; the amount that an issuer agrees to pay at the maturity date
PITI - Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.
PMI - Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.
Prepayment - payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.
Principal - the amount borrowed from a lender; doesn't include interest or additional fees.
Pro-Forma - the statement of projected income and expenses for a particular investment property. The numbers on a pro forma are typically not the actual numbers of the property but a proposed future scenario of how the property could operate and may include rent increases, decreases in expenses, and solving any problems that may exist.
Refinancing (REFI) - paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).
RESPA - Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.
Settlement - another name for closing. Subordinate - to place in a rank of lesser importance or to make one claim secondary to another.
Title Insurance - insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers.
Title Search - a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.
Underwriting - the process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.