Note Buyers Guide 101

I income property Real estate developed or improved to produce income. index A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.. This interest rate is subject to any caps that are associated with the mortgage. in-file credit report An objective account, normally computer-generated, of credit and legal information obtained from a credit repository. inflation An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less. initial interest rate The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as start rate or teaser. installment The regular periodic payment that a borrower agrees to make to a lender. installment loan Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan. insurable title A property title that a title insurance company agrees to insure against defects and disputes. insurance A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium. insurance binder A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date. insured mortgage A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount. interest The fee charged for borrowing money. interest accrual rate The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations. interest rate The rate of interest in effect for the monthly payment due. interest rate buydown plan An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is bought down below the actual interest rate. interest rate ceiling For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note. interest rate floor For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note. investment property A property that is not occupied by the owner. IRA (Individual Retirement Account) A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds. Income Stocks Companies with high dividend yield or no NPV > 0 opportunities. Incremental Cash Flows Indenture The legal agreement between the firm issuing the bond and the bondholders, providing the specific terms of the loan agreement. Index A yardstick to measure change from a base year. Index Funds Mutual funds whose objective is to replicate the performance of an index. The most popular equity index is the S&P 500. Inflation A general increase in prices of goods and services. Inflationary Premium (IP) Additional compensation over the T-bill that levers require to compensation them for the risk of expected inflation. Inflation-Indexed Bonds Inside Market The highest bid and the lowest offer prices among all competing dealers in a Nasdaq security, i.e., the best bid and offer prices. Insiders These are directors and senior officers of a corporation -- in effect those who have access to inside information about a company. An insider also is a shareholder who owns more than 10 percent of the voting shares of a company. Interest Rates Interlocking Directors When competing companies (say, IBM and Apple) have a common Board of Directors. This is illegal in the US but is common practice in Japan. Intermediaries See Financial Intermediaries Internal Financing Financing projects through retained earnings. International Diversification In-the-money Options An option that would be worth exercising if it expired immediately. Also see out-of-the-money options. Investment Banks are firms that assist companies in initial sale of securities in primary market. Investment Company A company that uses its capital to invest in other companies. There are two types: the closed-end and the open-end, or mutual fund. Investment-Grade Bonds Bonds rated Baa or above. IP (Inflationary Premium) Additional return required to compensate asset holders for inflation uncertainty. IPO (Initial Public Offering) Securities are offered for the first time to the public.