"A" Glossary and Acronyms

Annual report

A yearly report or record of the financial position and operations of an investment or company.

Annuitant

The person whose life is insured is the annuitant. The annuitant and the annuity owner aren’t necessarily the same person.

Annuitization

The time you spend contributing to your annuity is the accumulation phase. The annuitization phase begins when you start receiving money from your annuity.

Annuity

An insurance contract issued by a life insurance company. The contract provides income at regular intervals for a defined period of time, such as a specific number of years or for life.

Annuity commencement date

The date stated in the annuity contract indicating when annuity payments will begin. This is also known as the annuity start date.

Appreciation

An increase in the value of an investment.

Asset

Anything with commercial or exchange value that is owned by a business, institution or individual. Examples include cash, real estate and investments.

Asset allocation

Spreading your investments between asset categories (stocks, bonds, cash or cash equivalents) may help minimize risk. That’s because investment categories respond to changing economic and political conditions in different ways. Just keep in mind that the use of asset allocation does not guarantee returns or insulate you from potential losses.

Asset class

A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (such as stocks), fixed income (such as bonds), and cash alternatives or equivalents (such as money market accounts).

Asset-based fees

Expenses that are based on the amount of assets in your plan. These fees are generally charged as percentages or basis points.

Automatic asset rebalancing (AAR)

An optional service that will periodically exchange money between funds in your account to maintain your original investment levels. AAR saves you the time and hassle of manually reallocating your current balance every few months.

Average annual total returns

The annual compounded returns that would have produced the cumulative total return if fund performance had been constant during a given period.

Assumable loan

A loan that may be transferred to someone else while maintaining the same terms is an assumable loan. For example, if you have an assumable loan (not all loans are assumable) and you sell your home, you may be able to transfer that loan to the new owner with no change in the interest rate and repayment schedule, though you may need to pay a fee in order to do so.

Assumption (of mortgage or Trust Deed)

The acquisition of real property coupled with the assumption of personal liability for debt accrued by that property is an assumption.

Active management

The trading of securities to take advantage of market opportunities. In contrast to passive management, active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.

Alternative Documentation

A method of documenting a loan file by using information such as pay stubs, W-2 forms, and bank stubs instead of waiting on verifications sent to third parties for confirmation of statements made on the application.

Actuary

A mathematician who calculates premiums, reserves, dividends, insurance, pension and annuity rates for insurance and financial services companies.

Aggressive growth fund

An investment fund that takes higher risk of loss in return for potentially higher returns or gains.

Alpha

A measure of the difference between a fund's actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates the fund's under performance, given the expectations established by the fund's beta. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.

Annual rate of return

The annual rate of gain or loss on an investment, expressed as a percentage.

Arbitration

A dispute resolution process in which the disputing parties choose one or more neutral third parties to make a final and binding decision resolving the dispute. A third party may be chosen directly by mutual agreement, or indirectly by agreeing to have an arbitration organization select the third party.

Assessment

Determination of the rate or amount of something, such as tax or damages.

Assessor

An official who evaluates assessments, especia1lly for purposes of taxation.

Assessed value

The value of a property, established by a public tax assessor. The assessed value is used to determine property taxes.

Assignment

The method of transferring a right or contract, such as the terms of a loan, from one person to another.

Assignment of Mortgage

An assignment in which a mortgage lender or borrower transfers the mortgage to a third party.

Asbestos

A soft gray mineral that was used as building material in the past. It is no longer in use, but can still be found in some older homes. When asbestos dust is inhaled, it can cause serious disease of the lungs.

Appraiser

An Impartial person who estimates the value of something such as real estate is an appraiser.

Appraisal contingency

A contingency in a sales contract that the property must appraise at a value that is equal to or greater than your offering price is known as an appraisal contingency.

Appreciation

An increase in the value of property over time. Important factors in a home’s appreciation are its location, condition and the selling price of similar homes in the area. Appreciation increases the amount of equity, which may also increase the amount you can borrow for a home equity line of credit.

Approved term (after approval)

The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.

Approved term (before approval)

The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.

Agreement of Sale

An Agreement that obligates someone to sell and may include a corresponding obligation for someone else to buy.

Amortization

The gradual reduction in the principal amount owed on a debt. During the earlier years of the loan, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Amortization table or schedule

A timetable or schedule that gives you a breakdown of your monthly payments into principal and interest. You can use this schedule to figure out the amount of principal you’ll be repaying during your mortgage term.

Amortization term

The amount of time required to amortize (pay off) the loan, expressed in months. For example, for a 15-year fixed-rate mortgage, the amortization term is 180 months.

Annual adjustment cap

A limit on how much the variable interest rate on a loan can increase or decrease each year.

Annual percentage rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees (such as mortgage insurance, most closing costs, discounts points and loan origination fees) to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the costs of similar credit transactions.

Application fees

Nonrefundable fees paid when you apply for your loan. These fees may include charges for items such as, for example, a credit report or a property appraisal.

Appraisal or appraised value

An informed estimate of the value of a property. When made in connection with an application for a loan secured by a home, a professional appraiser usually performs the appraisal.

Appraisal Fee

A fee charged by a licensed certified appraiser to determine the fair market value.

Adjustment period

The period of time between adjustment dates for an adjustable-rate mortgage (ARM).

Affordability analysis

A preliminary analysis of a borrower’s ability to afford the purchase of a home that takes into consideration factors such as income, liabilities and available funds, as well as the type of home loan, the likely taxes and insurance for the home and the estimated closing costs.

Affiliated Business Arrangement (ABA)

An arrangement in which a person refers a business to a real estate service involving a federally related mortgage loan that has either an affiliate relationship with or a beneficial ownership interest. Such persons directly or indirectly refer business to that provider and may influence the selection of that provider. An Affiliated Business Arrangement (ABA) is not a violation of Section 8 of the Real Estate Settlement Procedures Act (RESPA)

Adjustment cap

A limit to how much a variable interest rate can increase or decrease in a single adjustment period in an Adjustable Rate Mortgage (ARM) is an adjustment cap.

Adjustment date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Interval

On an Adjustable Rate Mortgage (ARM), the time between changes in the interest rate and/or monthly payment. Typically one, three, or five years depending on the index.

Abstract of title

A written history of all the transactions related to the title for a specific tract of land. An abstract of title covers the period from the original source of title (often the original land grant from the United States government to an individual) to the present time and summarizes all subsequent documents that have been recorded against it.

Acceleration Clause

A loan Agreement provision that required the debtor to pay off the balance sooner than the due date if some specified event occurs, such as failure to pay an installment or to maintain insurance is an Acceleration Clause.

Acceptance

A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.

Accrued Interest

Interest that is earned but not yet paid is accrued interest. For example, interest that accrues on real estate will be paid when the property is sold if the rental income does not cover the mortgage payments.

Acquisition Costs

The Original cost of an asset is known as an Acquisition cost.

Adjusted Basis

Basis increased by capital improvements and decreased by depreciation deductions

Account termination fee

A fee that may be charged if you pay in full and terminate your home equity line of credit during the first 5 years. Paying down to a zero balance does not count as termination. 

Additional principal payment

A payment made by a borrower of more than the scheduled principal amount due in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

Adjustable-rate mortgage (ARM)

A mortgage in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period and over the life of the loan. Also called a variable-rate mortgage.

Adjustable Rate Mortgage Disclosure

Describing the features of the Adjustable Rate Mortgage (ARM) loan which must be presented to the consumer within 3 days of application.

Adjustable Rate Mortgage Handbook (CHARM)

The consumer handbook to Adjustable Rate Mortgages must be presented to the borrower within three days of application.