Reference
Financial glossary
Plain-English definitions of 75 terms you will meet when borrowing, saving or investing in property. Where a term differs between countries, we note the US, Australian, UK and Canadian versions, and link to the calculator or guide that puts it to work.
A
- Adjustable-rate mortgage (ARM)
- A US mortgage with a fixed rate for an initial period, such as five, seven or ten years, after which the rate adjusts at set intervals based on an index plus a margin. A 5/1 ARM is fixed for five years and then adjusts once a year, within limits called caps. Fixed vs variable rates →
- Amortization
- Paying off a loan through regular scheduled repayments that each cover the interest due plus part of the principal, so the balance reaches zero at the end of the term. Early repayments are mostly interest and later ones are mostly principal. How amortization works →
- Amortization schedule
- A table listing every repayment on a loan, showing how much goes to interest, how much goes to principal, and the balance left after each payment. Loan calculator with full schedule →
- Annual percentage rate (APR)
- The yearly cost of a loan including interest and most required fees, expressed as a single percentage. Because it includes fees, it is usually higher than the interest rate and is a fairer way to compare offers. APR vs interest rate →
- Appreciation
- An increase in the value of an asset over time, such as a home rising in price. It is the opposite of depreciation. Rent vs buy calculator →
- APRC (annual percentage rate of charge)
- The UK version of the APR for mortgages. It covers the whole mortgage term, including the rate you would revert to after any initial fixed or tracker deal ends. APR, APRC and AER explained →
- APY (annual percentage yield) and AER
- The rate a savings account effectively earns in a year once compounding is included. APY is the US term and AER (annual equivalent rate) is used in the UK. Interest paid more often produces an APY or AER slightly above the stated rate. Compound interest calculator →
B
- Back-end ratio
- All your monthly debt payments, including housing, car loans, student loans and card minimums, divided by your gross monthly income. US lenders use it as your total debt-to-income ratio. Debt-to-income calculator →
- Balance transfer
- Moving a credit card balance to a new card, often one with a 0% or low introductory rate for a set period. There is usually a one-off transfer fee, and the rate rises when the promotional period ends. Credit card payoff calculator →
- Balloon payment
- A large lump sum due at the end of a loan, which lowers the regular repayments along the way. Balloons are common in car finance, but you pay interest on the balloon amount for the whole term and must be ready to pay or refinance it at the end. Car loan calculator →
- Biweekly (fortnightly) payments
- Paying every two weeks instead of monthly. If each payment is half your monthly repayment, you make 26 half-payments a year, the equivalent of 13 monthly payments, which pays the loan off years sooner. How to pay off your mortgage faster →
- Borrowing power
- The most a lender is likely to let you borrow, based on your income, living expenses, existing debts, deposit and the interest rate the lender uses to assess you. Home affordability calculator →
- Break costs
- A fee charged when you repay, refinance or switch a fixed-rate loan before the fixed period ends, to cover the interest the lender loses. The term is used in Australia and New Zealand. Break costs tend to be largest when rates have fallen since you fixed. Fixed vs variable rates →
C
- Cap rate (capitalization rate)
- A rental property’s net operating income divided by its price or value. It measures the return a property produces before any financing, which makes it useful for comparing properties. Investment property calculator →
- Cash flow
- For a rental property, the money left over each month or year after rent is collected and every cost, including loan repayments, is paid. Positive cash flow means the property pays for itself. Investment property calculator →
- Cash-on-cash return
- Annual pre-tax cash flow from an investment property divided by the total cash you put in, such as the deposit, closing costs and upfront repairs. It shows the return on your own money rather than on the whole property. Investment property calculator →
- Closing costs
- The fees and charges paid to complete a property purchase or refinance, such as lender fees, appraisal, title insurance, legal fees and government taxes. In Australia these are often called settlement costs. Mortgage calculator →
- Combined loan-to-value (CLTV)
- The total of every loan secured on a property, such as a first mortgage plus a HELOC, divided by the property’s value. Lenders use it to check how much equity is left once all secured debts are counted. LTV calculator →
- Comparison rate
- Australia’s equivalent of the APR, combining the interest rate with most upfront and ongoing fees in a single figure. It is calculated on a standard example, such as $150,000 over 25 years for home loans, so it may not match your actual loan. APR vs interest rate →
- Compound interest
- Interest calculated on both the original amount and the interest already added, so the balance grows faster over time. It works for you on savings and against you on debt. Compound interest calculator →
- Credit score
- A number that summarizes your credit history and helps lenders judge how likely you are to repay. Scoring models and ranges differ by country and credit bureau, but a higher score usually means easier approval and lower rates.
- Credit utilization
- The share of your available revolving credit that you are using. A $1,500 balance on a $5,000 limit is 30% utilization, and keeping utilization low generally helps your credit score. Credit card payoff calculator →
D
- Debt avalanche
- A debt payoff method where you pay the minimum on every debt and put all extra money towards the one with the highest interest rate first. It minimizes the total interest you pay. Snowball vs avalanche →
- Debt consolidation
- Combining several debts into one new loan, ideally at a lower interest rate, so you have a single repayment. It only saves money if the new rate and fees are lower and you avoid running the old debts back up. Personal loan calculator →
- Debt service coverage ratio (DSCR)
- A property’s net operating income divided by its annual loan repayments. A DSCR of 1.0 means the income exactly covers the debt, and lenders generally want a ratio comfortably above that. Investment property calculator →
- Debt snowball
- A debt payoff method where you pay the minimum on every debt and put all extra money towards the smallest balance first, then roll that payment into the next smallest. It costs a little more interest than the avalanche but delivers quicker wins. Debt payoff planner →
- Debt-to-income ratio (DTI)
- Your monthly debt repayments divided by your gross monthly income, shown as a percentage. Lenders use it to judge whether you can comfortably take on a new loan. Debt-to-income calculator →
- Down payment (deposit)
- The part of a purchase price you pay from your own money, with the rest borrowed. It is called a deposit in Australia and the UK. A bigger down payment lowers your loan-to-value ratio and can help you avoid mortgage insurance. Savings goal calculator →
E
- Early repayment charge (ERC)
- A UK fee for repaying a mortgage, or overpaying more than the allowed amount, during an initial fixed or discounted deal. It is usually a percentage of the balance and often steps down each year of the deal. Fixed vs variable rates →
- Effective annual rate (EAR)
- The interest rate actually charged or earned over a year once compounding is included. A 6.5% rate compounded monthly has an effective annual rate of about 6.70%. Compound interest calculator →
- Emergency fund
- Cash set aside for unexpected costs or a loss of income. A common guideline is three to six months of essential expenses, kept somewhere you can reach quickly. Savings goal calculator →
- Equity
- The value of your property minus what you still owe on it. A $500,000 home with a $350,000 mortgage has $150,000 of equity, or 30%. LTV and equity calculator →
- Escrow
- In the US, an account run by your mortgage servicer that collects part of each monthly payment to pay your property taxes and homeowners insurance when they fall due. The term also describes a neutral third party holding money or documents until a sale completes. Mortgage calculator →
F
- Fixed rate
- An interest rate that stays the same for a set period, so your principal and interest repayments do not change. In the US this is often the whole loan term; elsewhere it is usually one to five years. Fixed vs variable rates →
- Front-end ratio
- Your monthly housing costs, including principal, interest, property taxes, insurance and any HOA fees, divided by your gross monthly income. It is also called the housing ratio. Debt-to-income calculator →
G
- Gross yield
- A rental property’s annual rent divided by its price, before any expenses. A property bought for $500,000 that rents for $26,000 a year has a gross yield of 5.2%. Rental yield calculator →
H
- HELOC (home equity line of credit)
- A revolving line of credit secured against the equity in your home, which you can draw on and repay as needed up to a limit. Rates are usually variable, and many HELOCs have an interest-only draw period followed by a repayment period. LTV calculator →
- Home equity loan
- A lump-sum loan secured against the equity in your home and repaid in regular instalments, usually at a fixed rate. It is sometimes called a second mortgage. LTV calculator →
I
- Inflation
- The rate at which prices rise over time, which reduces what a given amount of money can buy. Savings that earn less than inflation lose purchasing power. Inflation calculator →
- Interest rate
- The percentage charged on money you borrow, or paid on money you save, usually quoted per year. Unlike the APR, it does not include fees. APR vs interest rate →
- Interest rate differential (IRD)
- A Canadian prepayment penalty on fixed-rate mortgages, based on the gap between your rate and the lender’s current rate for the time left on your term. Lenders typically charge the greater of the IRD or three months’ interest. Fixed vs variable rates →
- Interest-only loan
- A loan, or a period of a loan, where repayments cover only the interest, so the balance does not fall. When the interest-only period ends, repayments rise because the full balance must be repaid over the remaining term. Mortgage calculator →
L
- Lenders mortgage insurance (LMI)
- In Australia, a one-off insurance premium usually charged when you borrow more than 80% of a property’s value. It protects the lender, not you, if you cannot repay. LVR calculator →
- Loan-to-value ratio (LTV / LVR)
- Your loan amount divided by the property’s value, shown as a percentage. It is called LTV in the US, UK and Canada and LVR in Australia, and a lower ratio usually means a better rate and no mortgage insurance. LTV / LVR calculator →
M
- Minimum payment
- The smallest amount you must pay on a credit card each month to keep the account in good standing, often a small percentage of the balance or a set dollar amount. Paying only the minimum can take many years and cost far more in interest. Credit card payoff calculator →
N
- Negative gearing
- An Australian term for an investment where deductible costs such as interest and expenses exceed the income it produces. The loss can generally be offset against other taxable income, but you are still out of pocket and relying on capital growth. Investment property calculator →
- Net operating income (NOI)
- A rental property’s income minus its operating expenses, such as property taxes, insurance, maintenance, management and vacancy, but before loan repayments and income tax. Investment property calculator →
- Net yield
- A rental property’s annual rent minus its annual running costs, divided by the price. It is lower than gross yield and gives a more realistic view of the return. Rental yield calculator →
- Nominal rate
- The stated interest rate before adjusting for compounding or inflation. A nominal rate of 6% compounded monthly has a higher effective rate, and a 6% nominal return with 3% inflation is a much lower real return. Inflation calculator →
O
- Offset account
- A transaction or savings account linked to your home loan, whose balance is subtracted from the loan balance before interest is calculated. Common in Australia and offered by some UK lenders, it cuts interest while keeping your money accessible. How to pay off your mortgage faster →
- Origination fee
- An upfront fee a lender charges to set up a new loan, often a percentage of the amount borrowed. It is called an establishment or application fee in Australia and an arrangement or product fee in the UK, and it is included in the APR. Personal loan calculator →
P
- PITI
- Principal, interest, taxes and insurance: the four parts of a typical US monthly mortgage payment. Lenders use PITI to work out your front-end ratio. Mortgage calculator →
- Points (discount points)
- Upfront fees paid to a US lender at closing in exchange for a lower interest rate, where one point equals 1% of the loan amount. Points only pay off if you keep the loan long enough for the lower repayments to cover their cost. APR vs interest rate →
- Prepayment penalty
- A fee for paying off all or part of a loan earlier than scheduled. Rules vary widely: they are uncommon on US mortgages, while fixed-rate loans elsewhere often carry break costs or early repayment charges. How to pay off your mortgage faster →
- Principal
- The amount you borrowed, or the part of it you still owe, not counting interest. Each principal and interest repayment reduces the principal a little. How amortization works →
- Principal and interest (P&I)
- A repayment type that covers both the interest charged and part of the balance, so the loan is fully repaid by the end of the term. In the UK this is called a repayment mortgage. Mortgage calculator →
- Private mortgage insurance (PMI)
- Insurance usually required on US conventional mortgages when the down payment is less than 20%, protecting the lender if you default. You can generally ask for it to be removed once your loan reaches 80% of the home’s original value, and it ends automatically at 78%. LTV calculator →
R
- Rate lock
- A lender’s commitment to hold a quoted interest rate for a set period while your loan is processed, sometimes for a fee. It protects you if rates rise before settlement or closing.
- Real return
- Your return after inflation. A 7% return with 3% inflation is a real return of about 3.9%, because your money grew but prices rose too. Inflation calculator →
- Recast (re-amortization)
- In the US, making a lump-sum payment and asking your lender to recalculate a lower monthly payment over the remaining term, keeping the same rate and end date. Lenders usually charge a small fee and set a minimum lump sum. Extra repayments calculator →
- Redraw facility
- A home loan feature, common in Australia, that lets you withdraw extra repayments you have made. The extra money reduces interest while it sits in the loan, but lenders can limit or change access to it. How to pay off your mortgage faster →
- Refinancing
- Replacing your current loan with a new one, from the same or a different lender, usually to get a lower rate, better features or access to equity. Switching costs and a longer term can wipe out the savings, so check the break-even point. Refinance calculator →
- Remortgage
- The UK term for moving your mortgage to a new deal with a different lender, often when an initial fixed or tracker period ends. Taking a new deal with your existing lender is called a product transfer. Refinance calculator →
- Rent vs buy
- A comparison of the full cost of owning a home, including interest, taxes, maintenance, buying costs and lost returns on your deposit, against renting and investing the difference. Rent vs buy calculator →
- Representative APR
- In the UK, the APR shown in a credit advert, which at least 51% of successful applicants from that advert must receive. Others may be offered a higher rate. APR vs interest rate →
- Rule of 72
- A shortcut for estimating how long money takes to double: divide 72 by the annual interest rate. At 6% a year, money doubles in about 12 years. Compound interest calculator →
S
- Simple interest
- Interest calculated only on the original amount, using I = P × r × t. Unlike compound interest, earlier interest never earns interest of its own. Simple interest calculator →
- Split loan
- An Australian home loan divided into a fixed-rate portion and a variable-rate portion, giving you some certainty and some flexibility. Fixed vs variable rates →
- Stamp duty
- A government tax on buying property, charged by Australian states and territories and, as Stamp Duty Land Tax, in England and Northern Ireland. Scotland and Wales have their own versions, and similar charges are called transfer taxes in the US and land transfer tax in parts of Canada. Home affordability calculator →
- Standard variable rate (SVR)
- A lender’s default variable rate. In the UK, mortgages usually move to the SVR when an initial deal ends, and it is typically higher than the deals offered to new borrowers. Fixed vs variable rates →
- Stress test
- Checking whether you could still afford your repayments if interest rates rose by a few percentage points. Lenders do this when assessing you, and it is worth running on your own budget too. How to stress-test your repayments →
T
- Term
- The length of time over which a loan is scheduled to be repaid, such as 30 years. In Canada, the term is the length of your current rate agreement, often five years, within a longer amortization period. Loan calculator →
- Tracker mortgage
- A UK variable-rate mortgage that moves in line with the Bank of England base rate plus a set margin, so your repayments change whenever the base rate does. Fixed vs variable rates →
V
- Variable rate
- An interest rate that can rise or fall during the loan, usually following central bank rate changes. Variable loans tend to allow unlimited extra repayments and offset or redraw facilities. Fixed vs variable rates →
Definitions are general information, not financial advice, and rules vary by country and lender. For worked examples, browse our guides or try the calculators.