Financial Glossary
Last verified · Methodology
Thirty essential terms every borrower, saver, and investor should know. Each definition is plain English, with a worked example and a free calculator to put the concept to use.
Lending & Interest(10)
APR (Annual Percentage Rate)
The yearly cost of a loan including interest plus most fees, expressed as a percentage.
Try the Loan Calculator →APY (Annual Percentage Yield)
The effective yearly return on a deposit or investment, accounting for compounding.
Try the Compound Interest Calculator →Interest Rate
The percentage a lender charges to borrow money, or that a bank pays on a deposit, per year.
Try the Loan Calculator →Principal
The original loan amount or the remaining balance you owe, separate from interest.
Try the Amortization Calculator →Amortization
The schedule by which a loan is paid off in equal payments, with shifting principal/interest split.
Try the Amortization Calculator →Compound Interest
Interest calculated on both the original principal and the accumulated interest from prior periods.
Try the Compound Interest Calculator →Origination Fee
A lender's upfront charge to process and underwrite your loan, typically 0.5-1% of the loan amount.
Try the Loan Calculator →Prepayment Penalty
A fee some lenders charge if you pay off a loan early by refinancing, selling, or making large extra payments.
Try the Mortgage Refinance Calculator →Co-Signer
A second person who signs a loan with the primary borrower and is equally responsible for repayment.
Try the Loan Calculator →Debt Consolidation
Combining multiple debts into a single new loan, ideally at a lower interest rate to simplify repayment.
Try the Debt Payoff Calculator →Mortgage(19)
LTV (Loan-to-Value Ratio)
The loan amount divided by the property's appraised value, expressed as a percentage.
Try the Home Affordability Calculator →DTI (Debt-to-Income Ratio)
Your total monthly debt payments divided by gross monthly income, used by lenders to qualify you.
Try the Home Affordability Calculator →PMI (Private Mortgage Insurance)
Insurance lenders require on conventional loans when your down payment is below 20%.
Try the Mortgage Calculator →Escrow
An account held by the lender to pay your property taxes and insurance from monthly mortgage payments.
Try the Mortgage Calculator →PITI
The four components of a typical mortgage payment: Principal, Interest, Taxes, Insurance.
Try the Mortgage Calculator →FHA Loan
A government-insured mortgage with low down payment (3.5%) and easier credit requirements.
Try the Mortgage Calculator →Conventional Loan
A mortgage not backed by the federal government, conforming to Fannie Mae or Freddie Mac guidelines.
Try the Mortgage Calculator →VA Loan
A mortgage guaranteed by the Department of Veterans Affairs, available to active military, veterans, and some spouses.
Try the Mortgage Calculator →Down Payment
The cash you pay upfront when buying a home, separate from the mortgage loan amount.
Try the Home Affordability Calculator →Closing Costs
Fees paid at the closing of a real estate transaction, typically 2-5% of the loan amount.
Try the Mortgage Refinance Calculator →HELOC (Home Equity Line of Credit)
A revolving credit line secured by your home equity, drawing funds as needed during a draw period.
Try the Mortgage Refinance Calculator →Mortgage Points
Upfront fees paid to the lender to lower your interest rate, where one point equals 1% of the loan.
Try the Loan Calculator →Front-End Ratio
The percentage of gross monthly income that goes to housing costs (PITI). Lenders typically cap at 28-31%.
Try the Home Affordability Calculator →Refinancing
Replacing your existing mortgage with a new one, typically to get a lower rate or change the loan term.
Try the Mortgage Refinance Calculator →Cash-Out Refinance
Refinancing for more than you owe and taking the difference in cash, using your home equity as collateral.
Try the Mortgage Refinance Calculator →ARM (Adjustable-Rate Mortgage)
A mortgage with an initial fixed rate for a set number of years, then a rate that adjusts periodically based on a market index.
Try the Mortgage Calculator →Fixed-Rate Mortgage
A mortgage where the interest rate never changes for the life of the loan, keeping payments predictable.
Try the Mortgage Calculator →Bridge Loan
A short-term loan that covers the gap between buying a new home and selling your current one.
Try the Home Affordability Calculator →Home Equity
The portion of your home's value you own outright, equal to market value minus the remaining mortgage balance.
Try the Home Affordability Calculator →Credit(3)
FICO Score
A 300-850 credit score from Fair Isaac that lenders use to gauge default risk.
Try the Loan Calculator →Credit Utilization
The percentage of your available revolving credit you are currently using. Below 30% is healthy.
Try the Credit Card Payoff Calculator →Balance Transfer
Moving credit card debt from one card to another, usually for a low or 0% promotional rate.
Try the Credit Card Payoff Calculator →Investing & Retirement(4)
401(k)
A US employer-sponsored retirement plan with tax advantages and often an employer match.
Try the 401(k) Calculator →Roth IRA
A retirement account funded with post-tax dollars that grows and withdraws tax-free in retirement.
Try the Retirement Calculator →Traditional IRA
A retirement account funded with pre-tax dollars that defers taxes until withdrawal in retirement.
Try the Retirement Calculator →4% Rule
A retirement guideline that withdrawing 4% of your portfolio yearly should last 30+ years.
Try the Retirement Calculator →Tax(2)
Income(2)
Looking for a term not on this list? Most of the math behind these terms shows up across our calculators. Start with the tool directory to see the full set, or check the blog for longer-form explanations.