Financial Glossary
A comprehensive A-Z reference of financial terms to help you understand loans, mortgages, credit, and more.
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that can change periodically after an initial fixed-rate period.
Amortization
The process of paying off a loan through regular payments over time. Each payment includes both principal and interest.
Annual Income
The total income earned in one year before taxes and deductions.
Annual Percentage Rate (APR)
The total yearly cost of borrowing money, including interest and certain fees.
Appreciation
An increase in the value of an asset over time.
Asset
Anything of value that a person or business owns, such as cash, real estate, or investments.
Auto Loan
A loan used to purchase a vehicle, typically repaid in monthly installments.
Balance Transfer
Moving debt from one credit card or loan to another, often to secure a lower interest rate.
Balloon Payment
A large payment due at the end of a loan term after smaller regular payments.
Bankruptcy
A legal process that helps individuals or businesses manage or eliminate debt.
Biweekly Payment
A payment made every two weeks rather than monthly.
Borrower
The individual or organization receiving money through a loan.
Bridge Loan
A short-term loan used until permanent financing is secured.
Budget
A plan that outlines income and expenses over a specific period.
Capital Gain
Profit earned from selling an asset for more than its purchase price.
Cash Flow
The movement of money into and out of a household or business.
Cash-Out Refinance
Refinancing a mortgage for more than the remaining balance and receiving the difference in cash.
Closing Costs
Fees and expenses paid when finalizing a mortgage or real estate transaction.
Co-Borrower
A person who shares responsibility for repaying a loan.
Collateral
Property or assets pledged to secure a loan.
Compound Interest
Interest earned on both the original principal and previously earned interest.
Cosigner
Someone who agrees to repay a loan if the primary borrower cannot.
Credit Card Utilization
The percentage of available credit currently being used.
Credit Score
A numerical representation of creditworthiness based on borrowing history.
Debt
Money owed to another party.
Debt Avalanche Method
A debt repayment strategy that prioritizes debts with the highest interest rates.
Debt Consolidation
Combining multiple debts into one loan or payment.
Debt Snowball Method
A debt repayment strategy that focuses on paying off the smallest balances first.
Debt-to-Income Ratio (DTI)
The percentage of monthly income used to pay debt obligations.
Default
Failure to make required loan payments.
Delinquency
A loan payment that is overdue.
Depreciation
The decline in value of an asset over time.
Down Payment
An upfront payment made when purchasing a home, vehicle, or other asset.
Earnest Money
A deposit made to show commitment when purchasing a home.
Effective Interest Rate
The true annual interest rate after compounding is considered.
Emergency Fund
Savings set aside for unexpected expenses or financial emergencies.
Equity
The difference between an asset's value and the amount owed on it.
Escrow
A financial arrangement where funds are held by a third party until certain conditions are met.
FHA Loan
A mortgage insured by the Federal Housing Administration.
FICO Score
A commonly used credit scoring model used by lenders.
Finance Charge
The total cost of borrowing money, including interest and fees.
First-Time Homebuyer
A person purchasing a home for the first time, often eligible for special programs.
Fixed Interest Rate
An interest rate that remains unchanged throughout the loan term.
Foreclosure
The legal process where a lender takes ownership of property due to missed mortgage payments.
Grace Period
A period after a payment due date during which a payment can be made without penalty.
Gross Income
Income before taxes and deductions.
Guaranteed Loan
A loan backed by a government agency or third party.
HELOC (Home Equity Line of Credit)
A revolving credit line secured by home equity.
Home Equity
The portion of a home's value that the owner truly owns.
Home Equity Loan
A fixed loan secured by the equity in a home.
Homeowners Insurance
Insurance that protects a home against damage and certain liabilities.
Housing Expense Ratio
The percentage of income spent on housing costs.
Inflation
The gradual increase in prices over time, reducing purchasing power.
Installment Loan
A loan repaid through fixed scheduled payments.
Interest
The cost of borrowing money.
Interest Rate
The percentage charged on borrowed money.
Interest-Only Loan
A loan where payments initially cover only interest.
Investment
An asset purchased with the expectation of generating future income or growth.
Joint Loan
A loan shared by two or more borrowers.
Jumbo Loan
A mortgage that exceeds conforming loan limits set by federal agencies.
Key Rate
A benchmark interest rate used by lenders when determining loan rates.
Late Fee
A charge assessed when a payment is not made by the due date.
Lease
A contractual agreement allowing temporary use of an asset in exchange for payments.
Liability
A financial obligation or debt owed.
Lender
The institution or person providing funds through a loan.
Line of Credit
A flexible borrowing arrangement allowing access to funds as needed.
Loan Amount
The total amount borrowed.
Loan Term
The length of time allowed to repay a loan.
Loan-to-Value Ratio (LTV)
The ratio between a loan amount and the value of the asset securing it.
Margin
The amount added to an index rate to determine a variable interest rate.
Minimum Payment
The smallest amount required to keep a loan or credit account current.
Monthly Payment
The amount due each month toward a loan obligation.
Mortgage
A loan used to purchase real estate.
Mortgage Insurance
Insurance that protects lenders if borrowers default on their mortgage.
Mortgage Points
Fees paid upfront to reduce a mortgage interest rate.
Negative Equity
When an asset is worth less than the amount owed on it.
Net Income
Income remaining after taxes and deductions.
Net Worth
The value of assets minus liabilities.
Occupancy Rate
The percentage of time a rental property is occupied.
Opportunity Cost
The value of an alternative that is given up when making a financial decision.
Origination Fee
A fee charged by lenders for processing a loan.
Outstanding Balance
The amount still owed on a loan.
Payment Schedule
The timetable showing when loan payments are due.
Personal Loan
A loan typically used for personal expenses without requiring collateral.
PMI (Private Mortgage Insurance)
Insurance required on many conventional mortgages with low down payments.
Preapproval
A lender's preliminary determination of a borrower's eligibility for a loan.
Prepayment Penalty
A fee charged for paying off a loan early.
Principal
The original amount borrowed before interest.
Principal Balance
The remaining amount owed on the original loan principal.
Property Tax
Taxes assessed by local governments on real estate.
Qualified Mortgage (QM)
A mortgage meeting standards established to ensure borrowers can repay the loan.
Qualifying Income
Income used by lenders to determine borrowing eligibility.
Rate Lock
A lender's guarantee to hold an interest rate for a specified period.
Refinance
Replacing an existing loan with a new loan, often to obtain better terms.
Rent-to-Income Ratio
The percentage of income spent on rent.
Return on Investment (ROI)
A measure of investment profitability.
Reverse Mortgage
A loan allowing homeowners to convert home equity into cash.
Revolving Credit
Credit that allows repeated borrowing up to a set limit, such as a credit card.
Savings Goal
A target amount of money someone wants to save.
Savings Rate
The percentage of income saved rather than spent.
Secured Debt
Debt backed by collateral.
Secured Loan
A loan backed by collateral.
Simple Interest
Interest calculated only on the principal amount.
Sinking Fund
Money regularly set aside for a future expense.
Student Loan
A loan used to finance education expenses.
Tax Credit
A dollar-for-dollar reduction in taxes owed.
Tax Deduction
An expense that reduces taxable income.
Title Insurance
Insurance protecting against ownership disputes related to real estate.
Total Interest Paid
The total amount of interest paid over the life of a loan.
Total Loan Cost
The sum of principal, interest, and applicable fees.
Underwriting
The process lenders use to evaluate loan applications and risk.
Unemployment Rate
The percentage of people actively seeking work who are unemployed.
Unsecured Loan
A loan that does not require collateral.
Utilization Ratio
The percentage of available credit currently being used.
VA Loan
A mortgage program available to eligible veterans and military service members.
Variable Interest Rate
An interest rate that can change over time based on market conditions.
Vesting
The process of gaining ownership rights to an asset or benefit.
Wealth Building
The process of increasing assets and net worth over time.
Withdrawal Penalty
A fee for accessing funds before an agreed-upon date.
Withdrawal Rate
The percentage of savings or investments withdrawn annually.
Yield
The income generated by an investment.
Yield Curve
A graph showing interest rates across different loan maturities.
Zero Down Payment
A loan requiring no upfront down payment from the borrower.