Glossary of Terms

Mortgage Loan: An agreement between a lender, such as a bank, and an individual to borrow money (called the principal) used to purchase a home or other real estate property. The loan is usually paid back over a period of many years (15, 25 or 30 years). If the borrower fails to pay back the loan, the lender has the right to take ownership of the property.

Interest: A charge for borrowed money, usually a percentage of the total.

Principal: A capital sum, or amount of money, placed at interest.

Equity: The difference between what a house is worth if it is sold, and how much is left to pay on the loan. The money value of a property in excess of claims or liens against it.

Second Mortgage: Money borrowed against the equity held in a mortgage loan.

Default: A failure to pay a financial debt.

Secured Loan: Money borrowed against a tangible asset, such as a house or car.

Foreclosure: A legal proceeding that allows a lender to take possession of an asset used as collateral for a mortgage loan.

Appreciation: An increase of the value of an asset, typically as a result of market conditions or tangible improvements.

Value: The monetary worth of something.

Profit: The excess or returns over the expenses of a transaction.

Flipping: The act of purchasing an asset, such as house, for the express purpose of re-selling it for a profit.

Bubble: Financial trade in products or assets with inflated values.

Deregulation: The act or process of removing restrictions and regulations on a trade or other activity.

Derivative: A financial instrument (or agreement) between two parties that has a value determined by the price of something else (called the underlying). The value of the agreement is linked to the expected future price of the underlying. There are many kinds of derivatives, including swaps, futures, and options.

Hedge: To buy or sell commodity futures as protection against financial loss.

Fair Market Value: An estimate of the monetary value of a property, based on what a buyer would probably pay to a seller in the real estate market.

Out-of-Pocket Expense: Direct outlays of cash which may or may not be reimbursed.

Home Improvement: Building projects that alter the structure of an existing home with the goal of increasing its value in the market.

Break Even: The point at which cost or expenses and revenue are equal and there is no net loss or gain in a sale.