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GLOSSARY
Cap
In case of fluctuating interest rates in Adjustable Rate Mortgages, the borrower can exercise a pricing option at the time of application to cap a declining market rate. He is assured that the rates and points exisitng at the time will not rise with the market rates but neither can they come down if market rates decline. Caps have different terms depending on how often and when the borrower exercises this option. A cap is costly to the lender and thus costs the borrower more. Some ARMs may have a life cap but permit the interest rate to fluctuate freely for which they require a minimum payment which changes annually. This payment also has its limitations in how much it can change and this limit is also referred to as a cap.
Capacity
Cancellation of debt is the writing off of a borrower's outstanding principal balance, even though payment hasn't been made. The lender essentially wipes away the debt, and the borrower is free from obligation.
Capital
Capital is the money or property that a business uses to create revenue. The term can also refer to the total value of a business or individual, in terms of the value of assets owned less any debt.
Capital asset
A capital asset is owned property that's typically used for income generation or value growth. Real estate and securities portfolios are capital assets, as is factory equipment owned by a business.
Capital expenditure
The bundle of costs included in making an improvement or upgrade to a property, industrial building, or equipment. It can be anything from a major repair to an existing facility or building a new factory.
Capital gain
A capital gain is the increase in an asset's value, such that it becomes worth more than the purchase price. The gain is known as an unrealized capital gain until the asset is sold. Once the asset is sold and the profit is made, the gain is called a realized capital gain.
Capital gain distribution
A capital gain distribution is a payout of realized profits from a mutual fund to its investors. A mutual fund earns capital gains in the same way that an individual investor would, by selling a security for more than the original cost. These realized profits are then paid out to the funds' investors through capital gains distributions.
Capital gains tax
Capital gains tax is an income tax levied on profits earned when an asset is sold for more than its purchase price. Capital gains tax is most commonly associated with profits made on selling shares of stock.
Capital growth strategy
Capital growth strategy is an approach to investing where the primary goal is to increase value over a long period of time.
Capital improvement
Any structure or other asset permanently added to a property that adds to its overall value.
Capital loss
A capital loss results when the value of an asset decreases below the original purchase price. If a share of stock is purchased for $10, and the value subsequently declines to $8, the stockholder incurs an unrealized capital loss. If the stockholder decides to sell the share for $8, the capital loss would then be realized.
Capitalization
Capitalization is a measure of a company's value. It can be calculated as the sum of a company's long-term debt and equity, or as the stock price multiplied by the number of shares outstanding.
Capitalization rate
Capitalization rate is a measurement of annual yield used for property and other capital assets. The capitalization rate is equal to income after taxes, divided by estimated value.
Capitalized (cap) cost
Capitalized (cap) cost is a figure representing the base value of a leased asset. Capitalized (cap) cost is used to calculate lease payments on auto and equipment leases.
Captive finance company
A captive finance company is a commercial entity that's wholly owned by another company, and whose business purpose is solely to finance customer purchases of the parent company's product. A retail chain selling consumer electronics, for example, might own a finance company that solely provides credit accounts to the retail customers who are buying electronics.