ALPHABETICAL GLOSSARY
A B C D E F G H I J K
L M N O P Q
R S T U V W X
Y Z
Ability to pay
Refers to the borrower's ability to make interest and principal payments on debts.
Account balance
Credits minus debits at the end of a reporting period.
Account reconciliation
The reviewing and adjusting of the balance in a personal checkbook to match your bank statement.
Accounting liquidity
The ease and quickness with which assets can be converted to cash.
Accounts receivable turnover
The ratio of net credit sales to average accounts receivable, which is a measure of how quickly customers pay their bills.
Accumulation
In the context of corporate finance, refers to profits that are added to the capital base of the company rather than paid out as dividends.
Acid Test
The ratio of current assets minus inventories, accruals, and prepaid items to current liabilities.
Amortization
The process of gradually repaying a loan over an extended period of time through periodic installments of principal and interest.
Acquired surplus
The surplus acquired when a company is purchased in a pooling of interests combination, i.e. the net worth not considered to be capital stock.
After-tax basis
The comparison basis used to analyze the net after-tax returns on a corporate taxable bond.
After-tax profit margin
The ratio of net income to net sales.
After-tax real rate of return
The after-tax rate of return minus the inflation rate.
Annuity
A regular periodic payment made by an insurance company to a policyholder for a specified period of time.
Asset
An item of value, such as a family's home, business, and farm equity, real estate, stocks, bonds, mutual funds, cash, certificates of deposit (CDs), bank accounts, trust funds and other property and investments.
Asset Turnover
Sales Revenue/Total Asset less Currant Liabilities.
Balance Sheet
The simple purpose of detailing where the money of the business came from. Capital + Liabilities (where the money came from) = Assets (where the money is now).
Balloon Payment
A larger than usual payment used to pay off the outstanding balance of a loan without penalty. Not all loans allow balloon payments. Simple interest loans, like many educational loans, generally do allow balloon payments.
Broker
The insured person's representative in negotiating and securing insurance. Not ordinarily an agent for an insurance company but places orders with insurance companies.
Budget
An amount of money that is planned (Forecasted) to spend on a particular event/resource.
Cancellation
Some loan programs provide for cancellation of the loan under certain circumstances, such as death or permanent disability of the borrower.
Capital Employed
The total long-term funds invested in or lent to the business and used by it in carrying out its operations.
Capital Gain
An increase in the value of an asset such as stocks, bonds, mutual funds and real estate between the time the asset was purchased and the time the asset was sold.
Capitalisation
The market value of a company calculated by multiplying the number of shares by the current share price.
Cashflow
The movement of cash in and out of a business.
Cashflow Statement
Shows the movement and availability of cash through and to the business over a given period.
Claim
A demand submitted to an insurance company requesting payment of an amount due under the terms of a policy.
Collateral
Property that is used to secure a loan. If the borrower defaults on the loan, the lender can seize the collateral. For example, a mortgage is usually secured by the house purchased with the loan.
Commission
A percentage of the premium paid to an agent or broker by the insurer.
Community Property
Community property laws specify that property is owned jointly by husband and wife unless there is a specific agreement to the contrary (i.e., prenuptial agreements).
Compounded Interest
Interest that is paid on both the principal balance of the loan and on any accrued (unpaid) interest. Capitalizing the interest on an unsubsidized Stafford loan is a form of compounding.
Comprehensive Insurance
A term used for a variety of policies providing broad protection.
Comprehensive Automobile Liability Insurance
An insurance policy designed to provide cover for a variety of vehicle risk liabilities including bodily injury and property damage.
Comprehensive Personal Liability Insurance
A policy that provides compensation if the insured injures others.
Consolidation Loan
A loan that combines several small loans into one bigger loan from a single lender. The consolidation loan is used to pay off the balances on the other loans.
Cosigner
A cosigner on a loan assumes responsibility for the loan if the borrower should fail to repay it.
Cost of debt ratio
The interest expense over a given period as a percentage of the average outstanding debt over the same period (cost of interest divided by average outstanding debt).
Cost of goods sold (COGS)
Sales less COGS = gross profit.
Cost of sales (COS)
Opening stock + stock purchased – closing stock = cost of sales.
Credit Rating
An evaluation of the likelihood of a borrower to default on a loan. Credit bureaus and credit reporting agencies provide this information to banks and businesses to help them decide whether to issue a loan or extend credit. Your credit rating may include your payment history, a list of current and past credit accounts and their balances, employment and personal information and a history of past credit problems.
Current Assets
Cash and everything that is expected to be converted into cash within twelve months of the balance sheet date.
Current Liabilities
Money owed by the business to creditors, bank overdraft, taxation within 12 months of balance sheet date.
Current Ratio
The relationship between current assets and current liabilities, indicating
the liquidity of a business (its ability to meet its short-term obligations).
Debenture
A debt instrument usually issued by corporates. It is repayable at a future date and pays the investor a fixed interest rate. The obligation is secured against the company assets. Debenture holders are paid before the company issues dividends.
Default
A loan is in default when the borrower fails to pay several regular installments on time (i.e., payments overdue by 180 days) or otherwise fails to meet the terms and conditions of the loan.
Deferment
Occurs when a borrower is allowed to postpone repaying the loan. You can't get a deferment if your loan is in default.
Delinquent
If the borrower fails to make a payment on time, the borrower is considered delinquent and late fees may be charged. If the borrower misses several payments, the loan goes into default.
Depreciation
The apportionment of cost of a capital item over an agreed period (based on life expectancy or obsolescence).
Discharge
To release the borrower from his or her obligation to repay the loan.
Disclosure Statement
Provides the borrower with information about the actual cost of the loan, including the interest rate, origination, insurance, loan fees and any other types of finance charges. Lenders are required to provide the borrower with a disclosure statement before issuing a loan.
Dividend
The distribution of part of the earnings of a company to its shareholders after the company has decided how much income to retain and plough back into the company. A dividend is usually expressed as an amount (in cents) per share.
Due Diligence
If a borrower fails to make payments on their loan according to the terms of the promissory note, the federal government requires the lender, holder or servicer of the loan to make frequent attempts to contact the borrower (via telephone and mail) to encourage him or her to repay the loan and make arrangements to resolve the delinquency.
Endowment
Funds owned by an institution and invested to produce income to support the operation of the institution.
Equity
The Rand value of your ownership in a piece of property.
Exchange rate
The value of one currency against another. Market sentiment and certain economic fundamentals such as the difference between the two countries' inflation and interest rates determine the level.
Fixed Assets
Assets held for use by the business rather than for sale or conversion into cash.
Fixed Cost
A cost that does not vary with changing sales or production volumes (building lease costs, permanent staff wages, rates).
Fixed Interest
In a fixed interest loan, the interest rate stays the same for the life of the loan.
Forbearance
During a forbearance the lender allows the borrower to temporarily postpone repaying the principal, but the interest charges continue to accrue, even on subsidized loans. The borrower must continue paying the interest charges during the forbearance period. Forbearances are granted at the lender's discretion, usually in cases of extreme financial hardship or other unusual circumstances when the borrower does not qualify for a deferment. You can't receive a forbearance if your loan is in default.
Gearing
The ratio of debt to equity, usually the relationship between long-term borrowings and shareholders’ funds.
Goodwill
Any surplus money paid to acquire a company that exceeds its net tangible assets value.
Grace Period
A specified period of time (usually about a month) after a premium is due during which the policy remains in force.
Gross Income
Income before taxes, deductions and allowances have been subtracted.
Gross Profit
Sales – cost of goods or services sold.
Holder
The lender, institution or agency that holds legal title to a loan. The holder may be the bank that issued the loan, a secondary market that purchased the loan from the bank or a guarantee agency if the borrower defaulted on the loan.
Home Equity
Current market value of a home less the mortgage's remaining unpaid principal. It is based on the market value, not the insurance or tax value.
Income
The amount of money received from employment (salary, wages, tips), profit from financial instruments (interest, dividends, capital gains), or other sources (welfare, disability, child support, Social Security and pensions).
Insured
Party that the insurer agrees to compensate for losses.
Installment Loan
A consumer loan in which the principal and interest are repaid on a regular (usually monthly) schedule. The payments are called "installments" and are all for the same amount.
Interest
Amount charged to the borrower for the privilege of using the lender's money. Interest is usually calculated as a percentage of the principal balance of the loan. The percentage rate may be fixed for the life of the loan, or it may be variable, depending on the terms of the loan.
Lapsed Insurance Policy
The cancellation of insurance due to the failure of the insured to pay premiums regularly. None of the money already paid will be reimbursed if the policy lapses before all costs, including commission to agents, are met.
Lender
A bank, credit union, savings & loan association, or other financial institution that provides funds for business or personal use.
Liabilities
Are long-term loans of the type used to finance the business and short-term debts or money owing as a result of trading activities to date.
Line of Credit
Pre-approved loan that lets you borrow money up to a pre-set credit limit.
Lump Sum
A single cash payment.
Margin
Money or securities deposited with a stockbroker and used as collateral to cover any potential losses made on investments. A broker makes a margin call to increase the funds in the account if the market moves adversely against the investor's shareholding.
Maturity Date
The date when a loan comes due and must be repaid in full.
Money Market
The wholesale funding market banks use to raise or lend money to balance their retail assets and liabilities. Money market instruments are relatively short-term in nature (maturity of one year or less) and include certificates of deposit, treasury bills and other types of interbank funding.
Mortgage
A loan of funds for purchasing a piece of property which uses that property as security for the loan. The lender has a lien on the property and will receive the property if the borrower fails to repay the loan.
Non-forfeiture Option
Option which allows for the value of a policy to be paid out when the insured defaults on payments. The value of the policy is payable either in cash or some another form of insurance.
Net Assets
Total assets (fixed and current) – current liabilities and long-term liabilities that have not been capitalized.
Net Current Assets
Current Assets – Current Liabilities.
Net Income
This is income after taxes, deductions and allowances have been subtracted.
Net Profit
Profit after deduction of all operating expenses, notably after deduction of fixed costs or fixed overheads.
Origination Fee
Fee paid to the bank to compensate them for the cost of administering the loan.
Overhead
An expense that cannot be attributed to any one single part of the company’s activities.
Prepayment
Paying off all or part of a loan before it is due.
Principal
The amount of money borrowed or remaining unpaid on a loan. Interest is charged as a percentage of the principal. Insurance and origination fees will be deducted from this amount before disbursement.
Profit & Loss Account
Sales revenues, cost of sales/cost of goods sold, generally a gross profit margin, fixed overheads and/or operating expenses, and then profit before tax figure.
Promissory Note
The binding legal document that must be signed by the borrower before loan funds are disbursed by the lender. The promissory note states the terms and conditions of the loan, including repayment schedule, interest rate, deferment policy and cancellations.
Prospectus
A legal document stipulating the history, financial standing and objectives of a company or a unit trust before the company lists or the fund launches.
Real Rate of Return
The inflation-adjusted return of an asset.
Repayment Schedule
The repayment schedule discloses the monthly payment, interest rate, total repayment obligation, payment due dates and the term of the loan.
Repayment Term
The term of a loan is the period during which the borrower is required to make payments on his or her loans. When the payments are made monthly, the term is usually given as a number of payments or years.
Reserves
The accumulated and retained difference between profits and losses year on year since the company’s formation.
Restricted funds
These are funds used by an organization that are restricted or earmarked by donors for a specific purpose.
Return
Gain or loss made on an investment for a specified period.
Return on capital employed (ROCE)
Profit before interest and tax/capital employed x 100.
Return on investment
Profits derived as a proportion of and directly attribute to cost or ‘book value’ of an asset, liability or activity, net of depreciation.
Secured Loan
A loan backed by collateral. If you fail to repay the loan, the lender may seize the collateral and sell it to repay the loan. Auto loans and home mortgages are examples of secured loans. Educational loans are generally not secured.
Servicer
An organization that collects payments on a loan and performs other administrative tasks associated with maintaining a loan portfolio.
Settlement Date
Date at which the sale or purchase transactions of securities must be settled.
Simple Interest
Interest that is paid only on the principal balance of the loan and not on any accrued interest.
Term
The number of years (or months) during which the loan is to be repaid.
Underwriter
A company that receives premiums from policyholders and is responsible for the implementation of a policy contract.
Unsecured Loan
A loan not backed by collateral, representing a greater risk to the lender. The lender may require a co-signer on the loan to reduce their risk. If you default on the loan, the co-signer will be held responsible for repayment.
Variable costs
A cost which varies with sales or operational volumes (Materials, fuel, commission payments).
Variable Interest
In a variable interest loan, the interest rate changes periodically.
Volatility
Unusually large price movements in markets or shares.
Working capital
Current assets less currant liabilities, representing the required investment, continually circulating, to finance stock, debtors, and work in progress.
Yield
Income from an investment (usually annually) expressed as a percentage of the price. For shares, the yield is the annual dividend divided by the purchase price. For bonds, it is the coupon rate divided by the market price.
HOME LOANS GLOSSARY
A B C D E F G H
I J K
L M N O P Q R
S T U V W X Y Z
Accrued Interest
Interest that accumulates on a loan and has be to paid back at a later date, usually when the principal is due, rather than being paid from the time the loan is made. Accrued interest may be compounded, with interest charged on interest, or a simple rate on the value of the original loan.
Adjustable Rate Mortgage
A mortgage with an interest rate that can be adjusted as the prime rate changes. (Also known as a variable rate mortgage.)
Agreement of Sale
The legal contract between the buyer and seller of a property including the sale price, settlement date and all other conditions.
Appraisal
A professional assessment of the market value of a property.
Appreciation
The capital increase in value of an asset.
Amortisation
The process of paying back a loan in installments. During the first few years, the biggest part of the installment goes towards paying off the interest owed.
Amortisation Schedule
Timetable for payment of a mortgage.
Balloon Mortgage
A mortgage with a fixed interest rate for installments over a specific term and one large last payment at the end of the term to settle the outstanding amount of the principal.
Basis Point
One one-hundredth of a percent (.01%). Changes in interest rates are often quoted in basis points.
Buy-down
When the lender and/or the home builder subsidises the mortgage by lowering the interest rate during the first few years of the loan. The payments are initially low, but increase when the subsidy expires.
Cap
Limit on how much the interest rate on an adjustable rate mortgage can change in a year and/or the life of the loan.
Closing
Signing off on all loan documents.
Closing Costs
Fees paid when purchasing a property, including attorneys' fees, fees for preparing and filing a mortgage, taxes, escrow payments, title search and insurance. These expenses are usually paid on the day the title to the property is formally transferred from the seller to the buyer.
Commission
Broker's fee for facilitating the transaction, usually expressed as a percentage of the total paid by the buyer.
Conditional Sale
An installment type mortgage, where the buyer moves onto the property, but the title of the property remains with the seller until full payments are made.
Credit Report
An investigation into a person's credit history by a credit bureau. The report is used by the lender to determine if a loan applicant has a good credit standing.
Debt-to-income Ratio
A calculation based on an individual's monthly income to determine how much debt a potential borrower can take on.
Deed
A legal document transferring the ownership or title of a property from one owner to another.
Default
Failure to make payments on time. This can lead to the loan's foreclosure.
Down Payment
A sum (the difference between the purchase price and the portion of the price that is financed) usually paid by a buyer out of his/her own pocket.
Equity
The difference between the appraisal of a property and the outstanding mortgage payments.
Escrow
The part of a homeowners' monthly mortgage payment that is held by the lender to pay taxes, mortgage insurance and other recurring charges against the property. Escrow payments are also known as reserves.
Finance Charge
The total amount your loan will cost you. It includes all interest paid on the loan as well as the purchase sum, but excludes closing costs.
Fixed Rate
An interest rate that is negotiated upfront and does not vary throughout a loan term.
Foreclosure
The legal action that can follow defaulting. The lender ends all the borrower's rights to the mortgaged property. Foreclosure usually involves the forced sale of a property at public auction with the proceeds of the sale going towards debt owed.
Interest Rate
The charge - expressed as a percentage - for making use of credit. A 17% interest charge means that an amount equal to 17% of the amount borrowed will be charged each year by the lender as a lending fee.
Lock-in
A written agreement guaranteeing the home buyer a specified interest rate provided that the loan is formalised within an agreed period of time.
Mortgage
A legal agreement that pledges a property to the lender as security for payment of a debt.
Mortgage Life Insurance
A policy that covers the declining balance of a mortgage loan and is payable on the death of a borrower.
Net
The cash value after taxes have been taken into account.
Note of Default
An official notice to a borrower that an individual has defaulted on his/her loan and that legal action will be taken.
Offer to Purchase
A document that contains the price and terms under which a buyer is willing to buy a property.
Owner Financing
A transaction that requires the seller to supply all or a part of the financing to the buyer.
Per Diem Interest
A condition which states that the buyer will have to pay interest from the date of closing to the end of the month, depending on the day of the month the deal is finalised. The first home loan payment is usually due on the first of the following month.
Principal
The amount of debt, excluding interest, left on a mortgage.
Prime Rate
The interest rate banks offer to their best customers when securing a loan.
Refinancing
Securing a new loan in order to pay off the existing mortgage.
Second Mortgage
A second home loan taken out on a property. The second loan is always subordinate to the first and should the borrower default, the first mortgage has to be paid off with the proceeds of the foreclosure first.
Title
Documented proof of the possession of a property.
Title Insurance
Insurance to protect the lender or the buyer against losses arising from disputes over ownership of a property.
Title Search
An investigation into the history of ownership of a property to check for unpaid claims, restrictions or other problems to prove that the seller can transfer ownership without any complications.
Underwriter
A company or person responsible for issuing a mortgage.
Variable Rate
An interest rate that changes periodically in relation to the prime rate. Also known as an Adjustable Rate.