Chapter 1 Flashcards
Mortgage loan
A loan secured by a mortgage or deed of trust that creates a lien against real property; especially, a loan used to purchase real property when that same property serves as security for the loan.
Lien
A nonpossessory interest in real property, giving the lienholder the right to foreclose if the owner does not pay a debt owed to the lienholder.
Collateral
Property (personal or real) accepted by a lender as security for a loan. The lender has the right to keep or sell the collateral if the borrower fails to repay the loan as agreed.
Principal
The original amount of a loan, or the remainder of that amount after part of it has been repaid
Interest
A periodic charge that a lender requires a borrower to pay in exchange for the temporary use of the borrowed funds, usually expressed as an annual percentage of the remaining principal balance. Sometimes referred to as the cost of borrowing money or rent on the borrowed money.
Investment
When someone (an investor) makes a sum of money (investment capital) available for use by another person or entity, in the expectation that this will generate a return (a profit) for the investor.
Investment capital
Accumulated wealth (savings) made available to fund business enterprises or other ventures, projects, or transactions
Return on investment
Investor’s profit
Return of investment / Recapture
recapture of amount originally invested
Ownership investment
An investment in which the investor’s funds are used to purchase an asset or a property interest in an asset. Ex. Real estate and stocks.
Debt investment
Investor provides money to an entity that will eventually repay it. Ex. Loans, bonds, savings account, and CDs.
Appreciation
An increase in the value of an asset over time; the opposite of depreciation.
Dividend
A share of a company’s profits paid to a stockholder as a return on the investment
Certificate of Deposit (CD)
A savings arrangement in which a depositor agrees to leave money on deposit for the use of the financial institution for a specified period, or pay a penalty for earlier withdrawal.
Securities
Investment instruments that confer an interest or a right to payment, without allowing any direct managerial control over the enterprise invested in. Liquid assets.
Stock
A share of a corporation’s stock represents a fractional ownership interest in the corporation; a shareholder may receive a return on the investment in the form of dividends and/or appreciation of the share’s value.
Bond
A certificate of indebtedness issued by a governmental body or a corporation; it will generate a return for the bondholder in the form of periodic payments of interest until the principal is repaid in a lump sum.
Mutual fund
A company that invests its capital in a diversified portfolio of securities on behalf of its investors, who own shares in the fund.
Liquid investment
An investment that can be quickly and easily converted into cash
Yield
The rate of return that an investor receives on an investment, usually stated as an annual percentage of the amount divested. Not necessarily fixed.
Portfolio
The mix of investments and cash reserves held by an investor.
Diversification
The practice of investing in a variety of different ways and/or in a variety of different sectors of the economy, to make a portfolio safer
Interest rate risk
The risk that, after a loan is made for a specified term at a fixed interest rate, market interest rates will rise and the lender will miss the opportunity to invest the loaned funds at a higher rate.
Prepayment risk
The risk that a loan will be paid off sooner than expected (often because market interest rates have dropped), reducing the lender’s anticipated yield.
Market interest rates
The rates that, under current economic conditions, are paid on particular types of investments or charged for particular types of loans.
Factors that affect whether someone can afford to buy a home:
Housing prices
Income
Tax considerations
Availability of financing
SEC regulates securities trading to protect investors
Financial disclosures required
No insider trading
Refinancing
Home owners get new mortgage at lower rate and use proceeds of new mortgage to pay off old mortgage.
