Investment Terms

401 (k)

A 401(k) is a type of retirement plan that allows employees to save and invest for their own retirement. Through a 401(k), you can authorize your employer to deduct a certain amount of money from your paycheck before taxes are calculated, and to invest it in the 401(k) plan. Your money is invested in investment options that you choose from the ones offered through your company's plan. The federal government established the 401(k) in 1981 with special tax advantages, to encourage people to prepare for retirement. They get their catchy name from the section of the Internal Revenue Code which established them (you guessed it, section 401(k)).


A name for a type of scam that targets members of a specific demographic group. Perpetrators may attempt to relate to or exploit characteristics common to the demographic group. Targeted groups can include the elderly, ethnic groups, and religions. Perpetrators attempt to portray themselves as members of this group or people who can relate to the members of the group in order to gain trust and eventually money. Ponzi schemes and pyramid schemes are sometimes combined with affinity fraud.


A specified income payable at stated intervals for a fixed or a contingent period, often for the recipient's life, in consideration of a stipulated premium paid either in prior installment payments or in a single payment.


A long-term promissory note in which the issuer agrees to pay the owner the amount of the face value on a future date and to pay interest at a specified rate at regular intervals.


A firm that functions both as a broker by bringing buyers and sellers together and as a dealer by taking positions of its own in selected securities. Many firms that are commonly called brokers or brokerage firms are actually broker-dealers.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright ©2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company.


bond A bond that can be exchanged at the option of the holder into preferred or common stock at a preset ratio.


A contract with an insurance company that promises periodic payments keyed in a specific manner to a stock market index. Unlike variable annuities, equity-indexed annuities specify a guaranteed minimum return that is typically 3 percent. These contracts may also specify an upper limit (cap) on the return that is paid. Indexing methods vary, and surrender charges often apply to early withdrawals.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright ©2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company .


A false representation of a matter of fact that should have been disclosed, which deceives another so that he/she acts upon it to his/her injury.


Individual Retirement Account. An investment account in which a person can set aside income up to a specified amount each year and usually deduct the contributions from taxable income, with the contributions and interest being tax-deferred until retirement.


The fraudulent appropriation and use of someone's identifying or personal data or documents such as a credit card.


The investing of money or capital in order to gain profitable returns, as interest, income or appreciation in value.


An investment company that issues shares continuously and is obligated to repurchase them from shareholders on demand.


Phishing is a high-tech scam that uses spam email to deceive consumers into disclosing their credit card numbers, bank account information, Social Security numbers, passwords, and other sensitive personal information.


An illegal investment scheme in which investors are promised impossibly high returns on their investments. These are scams in which money from later investors is used to pay earlier investors. The creators of the scheme get most of the profits while those who come later are left with nothing because there are eventually an insufficient number of new investors to pay the existing ones. These scams inevitably collapse because they require exponential growth in the number of participants at each step, which is impossible. Letters or emails that encourage the recipient to send money and then pass the message along to a certain number of new targets are a type of pyramid scheme.


A written promise to pay a specified sum of money to a designated person or to his or her order, or to the bearer of the note, at a fixed time or on demand.


An individual retirement account in which investments are made with taxable dollars, but earnings are tax-free and withdrawals are tax-free after age 59 ½.


An annuity in which the premiums are invested chiefly in common stocks or other securities, the annuitant receiving payments based on the yield of the investments instead of in fixed amounts.


An insurance policy whose annuity payments or payment to the beneficiary are not fixed but depend on the income earned by the investment of the premiums.


The purchase of an interest in a terminally ill person's life insurance policy for a certain percentage of the policy's face value.

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Mortgage terms


The sale value of a property based on analysis by a licensed real estate appraiser. The analysis is based on the condition of the property and the value of comparable properties.

Bona fide
third party

Fees such as a credit report, real estate appraisal, title insurance, and real property survey. If you refuse a loan that the loan broker offers you, he is entitled under the Indiana Loan Broker Act to collect the actual cost of the bona fide third party fees of the credit report, real estate appraisal, title insurance, and any real property survey from you, if these services were actually performed. The Act permits the loan broker to collect the actual cost of these third party fees from you prior to the mortgage closing. You are entitled to written proof (such as a copy of the third party service provider's invoice) that these fees have been incurred, the identity of the third party service provider, and the actual dollar amount they charged for their services.


A borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use.


A number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan. A credit score is commonly referred to as a FICO score.


A report on the past ability of a loan applicant to pay installment payments. Several national and local companies make such reports.


Equal Credit Opportunity Act. A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.


Account established by the lender that is commonly used to pay property tax and insurance. A part of the borrower's mortgage payment is deposited into this account.


Loan brokers that fall under the jurisdiction of the Indiana Loan Broker Act but are not subject to its registration and education requirements.


The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.


The Indiana Securities Division of the Indiana Secretary of State's Office enforces the Indiana Loan Broker Act (IC '23-2-5; "the Act"). This state law regulates loan brokers doing business in Indiana.

Mortgage broker

In the mortgage industry, mortgage broker usually refers to a company or individual that does not lend the money for the loans themselves, but acts as an intermediary between a buyer and a lender. Also called a loan broker.


The institution that funds the mortgage loan.


A written promise to repay a specified amount over a specified period of time.


Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.


A mortgage that has a lien position subordinate to the first mortgage.


A company that checks public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.


The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.


Yield spread premium is a fee paid to the originator (usually the mortgage broker) as compensation for delivering a higher-than-market interest rate. This fee is paid to the mortgage broker by the mortgage lender (bank, credit union, or other mortgage lender). A "Yield Spread Premium" will often show in a closing statement, origination disclosure, or Good Faith Estimate as a "YSP".

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