Glossary of Financial Terms

Actual Cash Value – In insurance, a term that indicates if your home is destroyed and you decide not to replace it, you will receive its replacement cost, minus depreciation.

Adjustable Interest Rate – The interest rates of these loans rise as interest rates increase.

Balloon Mortgage – Interest rates on these loans are very low for a short period of time. Payments typically cover interest only, leaving the principal owed in tact.

Fixed Interest Rate – The interest rates with these loans are locked in when the mortgage is drawn up.

Government-backed Loans – Agencies such as the Federal Housing Association (FHA) offer loans with reduced interest or lower down payments to qualified buyers.

Interest Only Loans – Borrowers only pay interest on the loan for the first five to ten years, after which they have 20–25 years to pay off the principal plus interest.

Liability – In real estate, a term that indicates the seller’s responsibilities and obligations. In insurance, a term that covers homeowners should other persons get injured on their property.

Mortgage Term – The length of your mortgage.

Replacement Cost – In insurance, a term that indicates if your home is destroyed, you will receive money to replace it only to the maximum of your coverage.