These are the four components of the monthly payments to the lender, i.e. the principle, interest, taxes and insurance. Debt to income ratio is calculated by the lender from this amount. Sometimes mortgage insurance is also included in an impounded loan.

Planned unit development (PUD)

A type of ownership where a unit or the whole building is owned by an individual who lives in it and where the ownership of common spaces is shared by other members of the homeowner's association for the benefit of all owners.

Power of attorney

A legal document that authorizes one person to act on behalf of another. There can be a General POA granting compete authority or a specific POA for a specific act or for a certain period of time.


This term denotes that the borrower gets his home loan application with debt, income and savings proof reviewed and approved by an underwriter before finalizing any property. The pre-approval is done taking into account certain loan amount and estimating the interest rates and property taxes, insurance etc. at the time of taking the loan. It applies only to the borrowe, but once the property is chosen, it should also meet the underwriting guidelines of the lender.


A full or partial payment of the principal amount of the loan before due date.

Prepayment penalty

A penalty or fee charged for payment of the loan amount before the due date.


Information given to the loan officer about the borrowers position on his debt, income and savings before granting of a loan. The loan officer may or may not ask for the borrower's credit report.


The actual value of a mortgage or note borrowed or the balance left of a loan not taking into account any interest.

Private mortgage insurance (PMI)

It serves to protect lenders against defaults or losses from borrowers. Borrowers are required to carry Private Mortgage Insurance if their loan has loan-to-value higher than 80 percent. Depending on the type of loan the borrower will have to pay an initial premium and a monthly premium.

Payment cap

The top limit on the size of the monthly payment for an adjustable rate mortgage loan.

Payment saver loan

See lease-like loan.

Payment schedule

This is the guidelines set forth for determining when your payment is due and how much each monthly payment will be throughout the life of your loan.

Per diem interest

The amount of interest calculated per day.

Periodic cap

A protective measure for consumers that limits the maximum amount the interest rate on an adjustable rate mortgage can change in a time interval, usually 6-12 months.

Permanent loan

A long term mortgage ranging anywhere from 10 to 30 years. Sometimes called an end loan.

Personal loan

Money borrowed from a lender where property is not used as collateral. The rates are higher, like credit cards, and are generally smaller denominations over a two year period.

Piggyback mortgage

A type of second mortgage typically used to avoid paying for mortgage insurance, which is required on mortgages with less than 20 percent down. The borrower takes out a primary mortgage for 80 percent of the purchase price and then a second "piggyback" mortgage to cover all or part of the down payment.


An Acronym for Personal Identification Number. This number is used to access bank accounts at ATM's or sometimes online and should be kept a secret.

PITI reserves

An amount of cash that a homebuyer must have on hand after all of the closing costs and down payments have been made. This amount is generally equal to a specified amount of mortgage payments including principal, taxes, and insurance.


A map showing the way a parcel of land has been divided into individual lots. This map will also show the streets and easements.

PLUS loan

Loans that are not need based that the parents of the student may take out. These loans are offered by the college and the government and are determined by the FAFSA.


One point equals one percent of a mortgage. There are origination points and discount points. Origination points help cover the loan expenses for the lender and discount points help borrowers by reducing interest rates.


When all of the paperwork is complete and the closing arrangements are finalized, the owner is given keys to the house.

Pre-sold home

A home which is sold before it is built.

Pre-approval letter

The official letter stating how much money a borrower is qualified for based on interest rates and credit history.

Pre-foreclosure sale

When the borrower sells the property for less that what is owed on the loan to avoid foreclosure. This sale will fulfill the borrower's debt.

Prepaid interest

As a way to save on taxes, a borrower can pay interest before it is due.

Prepaid tuition plans

An option that lets potential and future parents pay for a semester of college today which will lock in the current interest rate for the future educations regardless of the year and tuition increases.

Preparation charges

An additional way for a car dealer to make money by convincing the buyer that they need to pay for prep charges which have already been paid by the manufacturer in order to get the car ready for sale.

Prime rate

The interest rate that a bank charges its most reliable customers who are the least likely to default on their loan.

Principle of conformity

The idea that a house will garner a fair price if it is located near houses of similar size and condition.

Principle of progression

When a piece of real estate which is of lower value can command a higher price due to its location and proximity to higher end properties.

Principle of regression

The opposite of progression. When a high end property's value is brought down by its location and proximity to lower end properties.

Probate sale

Upon the death of the owner, the sale of the property as supervised by the court. The proceeds are divided upon the heirs and creditors.

Production home

Homes that are mass produced by one builder or developer.

Promissory note

A written agreement to repay a loan.

Property tax

A tax assessed by the state or local government on real estate and personal property whose amount varies depending on the property's value and the various services provided to the property. Property taxes are most often paid into an escrow account and the lender is responsible for paying the taxes when it is due.

Property tax deduction

An expense on a home loan that the federal government allows homeowners to deduct from their income before computing their income tax

Property value

How much a piece of real estate is worth based on the price a buyer and seller would negotiate.


An agreement on how the property taxes are paid and handled depending on when the title changed hands.

Purchase agreement

A contract in which the buyer and seller approve the price and other terms of the transfer of title. This contract is required when you apply for the loan. Also called an agreement of sale, a purchase contract or a sale contract.

Purchase contract

See Purchase agreement.

Purchase option

A real estate agreement under which a portion of monthly rent may be used toward eventual purchase of the property. For automobiles, the portion of a lease agreement that establishes the amount the lease holder can pay in order to purchase the car when the lease terms are complete. The price is usually the residual value.

Purchase-money mortgage

A home loan that a borrower obtains to buy property and uses the property as collateral for the loan.

Package mortgage

A package mortgage is a loan secured by real estate property that finances the real estate and related personal property, such as furniture.


Paid describes a debt obligation that's been fulfilled.

Paid up

Paid up describes a debt or obligation that's current. In other words, all payments due have been made. The term can be used in reference to debts, credit accounts or brokerage accounts, such as when the customer must deposit funds to pay for a securities purchase.

Parallel loan

A parallel loan is a loan swap transaction, where two companies operating in different countries agree to lend each other money in their respective currencies. The purpose of the arrangement is to reduce the risk of financial loss related to foreign currency fluctuations.


Paraplanning is the name for the administrative functions associated with financial management and planning. These functions might include preparing reports and completing paperwork. A paraplanner is one who performs these duties, much as a paralegal performs administrative tasks for attorneys.


Parking is the action of placing cash into a safe but high-yield investment until it's needed for another purpose, such as securities purchases. Parking can also refer to the illegal transfer of shares by a brokerage for the purposes of concealing undeclared short positions created when stocks were not delivered by the settlement date.

Partial release

Partial release is a mortgage feature that allows some of the collateral to be removed from the collateral pool under certain conditions.

Partially amortized loan

Partially amortized loan is a debt instrument that's structured with periodic principal payments plus a balance due at maturity. For comparison purposes, if the periodic principal payments were to result in a zero balance at maturity, the loan would be called a fully amortizing loan.


Participation is the act of sharing ownership in a debt facility. Lenders often split up ownership of loans with other lenders, particularly on large debt facilities, to reduce exposure.

Participation certificate

Participation certificate is a share of lease revenues generated from an agreement made by a municipality. The municipality pursues this arrangement in lieu of offering a bond issue that's supported by lease revenues, usually to avoid restrictions on debt levels. Freddie Mac, Fannie Mae, Ginnie Mae, and Sallie Mae issue and guarantee participation certificates.

Participation loan

A participation loan is a debt facility that's made by a group of lenders. Lenders often split up ownership of loans with other lenders, particularly on large debt facilities, to reduce exposure.

Passbook savings account

Passbook savings account is a cash deposit arrangement with no check-writing capabilities. If covered by FDIC insurance, this type of account is considered very safe, but the yields are generally low.

Passive activity

Passive activity is an endeavor which doesn't require or receive an individual's material participation. Owning a property rental, for example, is a passive activity. The characterization of something as a passive activity has important tax consequences; losses resulting from passive activity can't be used to offset gains resulting from active activities.

Passive loss

Passive loss is negative income resulting from a passive activity. A passive activity is an endeavor which doesn't require or receive an individual's material participation, such as owning a property rental. From a tax perspective, passive losses resulting from passive activity can't be used to offset gains resulting from active activities.

Pass-through certificate

A pass-through certificate is an ownership share in a pool of conforming, federally-insured mortgage loans. As payments are made on the underlying loans, they're forwarded from the lender to the issuing agency to the certificate holders. Pass-through certificates are issued by Ginnie Mae.

Pass-through rate

Pass-through rate is the yield paid to the investors of a mortgage-backed security. The pass-through rate is lower than the average interest rate paid on the underlying mortgages, because guarantee and management fees also must be paid out of the interest income generated by them.

Pass-through security

A pass-through security is an ownership share in a pool of income-producing assets, such as conforming, federally insured mortgage loans. As income is generated from the underlying loans, it's forwarded (i.e., passed through) from the lender to the issuing agency to the certificate holders.

Past-due balance method

Past-due balance method is a means of determining financing charges, where interest is calculated on amounts that aren't paid as of the due date.


A pawnbroker is a businessperson who makes small loans that are collateralized by personal property. If the loan isn't repaid, the property is sold in a retail store called a pawn shop. Jewelry, watches, and musical instruments are examples of items that would be accepted by a pawnbroker.

Pay yourself first

"Pay yourself first" is a phrase referencing the personal finance strategy of saving first before paying for anything else. To implement the "pay yourself first" strategy, individuals route a designated amount of each paycheck into a savings plan as soon as the check is received. Developing this as a habit keeps the saver on track to meet future savings goals.

Payable on death - POD

Payable on death, or POD, is a banking arrangement that authorizes the bank or credit union to disperse the client's assets/deposits to a beneficiary immediately if the client passes away.


Paydown, in reference to debt, is short for paying down. It's a payment made that reduces a debt balance.

Paydown factor

Paydown factor, in mortgage-backed securities (MBS), is the ratio of one month's worth of principal reduction divided by the original principal amount. Paydown factors are reported monthly by MBS issuers.

Payment shock

Payment shock refers to the effect that a sudden increase in a loan's minimum payment can have on a borrower. Many mortgage loan products are structured to have potentially large changes in the minimum payment amount. Examples include ARMs with low teaser rates, and interest-only loans that later convert to fully amortizing loans. From a lender's perspective, payment shock is a risk, because the sudden increase could result in borrower default.

Payout phase

Payout phase is the duration of time when an annuity contract makes regular, periodic income payments to the annuitant. Prior to the payout phase, the annuity is said to be in the contribution phase. Annuity payments are taxable income.

Payroll card

A payroll card is a plastic pay card, similar to a debit card, that's funded by wage income. Instead of passing out paychecks, the employer funds each employee's card electronically. Employees can then access their funds at ATM machines.

Payroll tax

Payroll tax is the amount of funds withheld by an employer from an employee's paycheck, to cover federal, state, and local income taxes. Amounts withheld for specific types of taxes are usually itemized on the payroll stub. After the close of the tax year, the employee must fill out a tax return to determine if the payroll taxes withheld were enough to cover taxes owed.

Payroll taxes

Payroll taxes are amounts withheld by an employer from an employee's paycheck, to cover federal, state, and local income taxes. Amounts withheld for specific types of taxes are usually itemized on the payroll stub. After the close of the tax year, the employee must fill out a tax return to determine if the payroll taxes withheld were enough to cover taxes owed.

PC banking

PC banking is a service that provides individual and business customers with access to their banking records from a personal computer.


A penalty is a punishment incurred by the failure to follow a rule. In taxes, the IRS charges penalties to those who don't pay their taxes on time. In personal finance, credit card companies charge penalties to those who remit their payments late.

Penalty rate

Penalty rate, in lending, is a higher interest rate that goes into effect in default situations. Credit card agreements, for example, state the penalty rate (or default rate) value, along with the conditions that would cause the penalty rate to be triggered. Penalty rates can be several percentage points higher than the regular rate.

Pension fund

A pension fund is a program initiated by an employer to manage monies set aside for employee retirement. Monies deposited into the fund are invested for growth, so that the asset pool can support pension payments made to employees once they retire. Contributions come from employers and employees, and the management of the funds is usually outsourced to a third party.

Pension plan

A pension plan is a program initiated by an employer to manage monies set aside for employee retirement. Monies deposited into the plan are invested for growth, so that the asset pool can support pension payments made to employees once they retire. Contributions come from employers and employees, and the management of the funds is usually outsourced to a third party.

Pension shortfall

A pension shortfall occurs when a company's pension fund doesn't have sufficient funds to meet expected future payment obligations. This can happen in defined-benefit plans, which place the risk of investment returns on the company rather than the employee. If investments underperform, the plan won't have the liquidity available to meet its defined-benefit obligations. In a pension shortfall situation, the company must make additional deposits into the fund. Pension deposits are an expense to the company.

Per item charge

Per item charge is an assessment incurred by a banking customer who has exceeded the number of free transactions allowed for his account. If the account allows up to 25 transactions per month, the customer will have to pay the per item charge for every transaction after the 25th one.

Per-diem interest

Per-diem interest is one day's worth of interest on a debt. Since interest rates are based on a period of one year, per-diem interest is calculated by extrapolation. The total annual interest expense is calculated based on the rate, and then that figured is divided by 360 or 365 (for ordinary and exact interest, respectively) to calculate per-diem interest. Per-diem interest is used to calculate the first month's interest when a loan funds on a day other than the first of the month.

Periodic interest rate

Periodic interest rate is a loan's rate of interest, converted to be applicable to a time period other than one year. Interest rates are normally based on one year, but sometimes it's useful to know the rate to be charged over one week, one month or one quarter. These are periodic rates, and they're determined by extrapolation. If the rate on a loan is 10 percent, the periodic rate used to calculate one quarter's interest is 2.5 percent.

Periodic rate

Penalty rate, in lending, is a higher interest rate that goes into effect in default situations. Credit card agreements, for example, state the penalty rate (or default rate) value, along with the conditions that would cause the penalty rate to be triggered. Penalty rates can be several percentage points higher than the regular rate.

Periodic rate cap

A periodic rate cap is a limitation on how much an interest rate can be adjusted from one period to the next. Periodic rate caps are important to holders of adjustable-rate mortgages (ARMs); higher caps increase the possibility that the loan payments will rise beyond affordability at one adjustment.

Permanent life insurance

Permanent life insurance is a category of life insurance programs that offers a death benefit plus a tax-advantaged retirement investment account. Growth of funds in the investment account usually doesn't incur income tax liabilities. Permanent life insurance is considered an open-ended policy, in that the policy remains in force indefinitely and doesn't have to be renewed.

Personal Equity Plan - PEP

Personal equity plan, or PEP, is a type of investment plan that used to be available to U.K. citizens. PEPs encouraged investments by offering tax-free income and capital gains. PEPs were discontinued in the 1990s and replaced with Individual Savings Accounts.

Personal finance

Personal finance is a general term that refers to the strategies and practices of managing an individual's or household's money. Personal finance encompasses saving, budgeting, investing, etc.

Personal finance manager

A personal finance manager is a software program that helps individuals and households manage their money. Personal finance managers may have account registers, as well as budgeting and investment tools. Many also allow for data sharing with major banking and investment institutions.

Personal guarantee

A personal guarantee is an individual's agreement with a lender to repay the debts of a business. Loans made to start-up businesses require personal guarantees. As businesses become more established, the personal guarantee requirement will become a point of negotiation between the corporate officers and the lender.

Personal identification number

A personal identification number, or PIN, is a confidential password needed to access personal banking information at ATM machines, and to conduct purchase transactions using a debit card.

Personal income

Personal income is the total of an individual's gross earned, investment and passive business income.

Personal injury protection

Personal injury protection, or PIP, is an optional set of benefits available on an auto insurance policy. PIP pays medical expenses resulting from an auto accident.

Personal interest

Personal interest is interest charged on personal loans and credit card accounts. Personal interest is not tax-deductible.

Personal property

Personal property, also known as chattel, is any owned property that isn't permanently attached to one location. Any property other than real estate is usually regarded as personal property. Most lenders will not place liens on personal property, because the risk is much higher that the borrower can flee and take the property with him.

Personal property liability

Personal property liability is a type of automobile insurance coverage that pays for damages to another party's car or property when you're at fault.

Personal property taxes

Personal property taxes are assessments charged to owners of certain types of movable property (property other than real estate). Most commonly, personal property taxes are assessed by states and local governments on things like cars, motorcycles, boats, recreational vehicles, airplanes, campers, etc.

Personal use property

Personal use property is chattel that's owned for personal enjoyment rather than business or investment purposes. The distinction is important because losses associated with personal use property may not be tax-deductible.


Philanthropy is the practice of supporting the well-being of the human race. It's usually associated with giving donations to charitable organizations that pursue humanitarian objectives.


Phishing is a scam that's designed to lure consumers into voluntarily providing confidential information. The consumer will receive an email that appears to be from a bank or online service provider (such as PayPal). The email will explain that the consumer needs to update account information or remedy an account problem. A link will be provided where the consumer can sign on and perform the requested tasks. The link directs the consumer to a phony website, where the confidential information provided by the consumer is recorded.

Pick-up tax

Pick-up tax is a state-imposed assessment that's based on the federal estate tax. Pick-up taxes are used by states that don't have their own estate tax legislation; rather than developing separate legislation, these states collect estate taxes by "picking up" an amount derived from the estate's federal tax liability.

Piggyback loan

A piggyback loan is a second mortgage that's taken out to avoid mortgage insurance. Mortgage insurance is typically required on mortgages that finance more than 80 percent of the home's purchase price. A homebuyer who doesn't have a 20 percent cash down payment can fund a first mortgage for 80 percent and use a piggyback loan to cover the remainder of the purchase price.


PIP, also called personal injury protection, is an optional coverage available on auto insurance policies that pays the medical expenses incurred by you and your passengers that result from a qualified accident.

Planned urban development - PUD

Planned urban development, or PUD, is a zoning class that allows for residential and commercial buildings. The PUD classification allows builders to develop residential, retail, and professional buildings into one community, so that residents can live, work, and play locally.

Pledged asset

Pledged asset is property that secures debt and remains in possession of the lender until the debt requirements have been met. While the asset owner/borrower has to transfer the pledged asset to the lender, the lender has no ownership rights to the pledged asset unless the borrower defaults.


Pledging is the process of providing assets to a lender for use as loan collateral. Pledged assets are held by the lender until all debt conditions have been met, but the lender doesn't own those assets unless the borrower defaults.


PMI, or private mortgage insurance, is coverage that protects the lender from costs associated with foreclosing on a mortgage loan. Lenders require PMI coverage when the mortgage loan finances more than 80 percent of the property's value. PMI premiums are paid by the borrower.


Point is short for percentage point. In bonds, the term is used in reference to changes in interest rates; a rate that changes from 8 percent to 9 percent is said to have moved up 1 point. In real estate lending, a point is an upfront fee equal to 1 percent of the loan amount. Point can also refer to value changes in stocks and stock indices, even though these aren't percentage figures. For example, if the Dow Jones Industrial Average rises from 12,200 to 12,325, it is said to have increased 125 points.


Point-of-sale is the location, physical or virtual, where sales are made. In a retail store, the point-of-sale is the cash register area where consumers pay for goods. For an Internet retailer, the point-of-sale is the interface that accepts the consumer's payment information.

Point-of-service plan

Point-of-service plan, also called POS, is a type of healthcare coverage that allows insureds to choose in-plan care (like an HMO) or out-of-plan care (like a PPO). Insureds can save on out-of-pocket costs by using in-plan care providers, but they still have the option to choose the provider they want to see.

Points (time share)

Point-of-service plan, also called POS, is a type of healthcare coverage that allows insureds to choose in-plan care (like an HMO) or out-of-plan care (like a PPO). Insureds can save on out-of-pocket costs by using in-plan care providers, but they still have the option to choose the provider they want to see.

Points-based vacation plans

Points-based vacation plans are time share ownership arrangements, where use rights are given a point value based on length of the stay and size of the unit, etc. Properties form networks so that points can be used at any resort within the network.

Policy (insurance)

Policy (insurance) is the documentation that explains the rights and obligations of an insured and insurance provider. Specifically, the policy will state coverages, exclusions, and premiums.

Policy loan

A policy loan is a debt secured by the cash value of a life insurance policy. If the borrower doesn't pay back the debt, the policy death benefit can be reduced by the unpaid amount.

Pool factor

Pool factor is a reported figure that represents the percentage of principal still outstanding in a mortgage-backed security issued by either Freddie Mac, Fannie Mae, or Ginnie Mae. As principal payments are received on the underlying mortgages, they're passed through to investors. At any given time, the pool factor represents the mortgage principal that hasn't yet been repaid.

Pooled income fund

Pooled income fund is a mutual fund that invests financial gifts and distributes the income to fund participants and beneficiaries. The participants are the donors and the beneficiaries are the gift recipients. A pooled income fund provides tax advantages to the participant in the year the fund is created. The fund is structured to make income payments to the participant until death. After the participant's death, ownership of the assets are transferred to the beneficiary.

Pop-up option

Pop-up option is an optional feature on a pension plan that allows the retiree to continue receiving the full pension amount if the spouse dies before the retiree. Without the pop-up option, the retiree would receive a lesser, "survivor" amount once the spouse passes.


Portability is the quality of being movable; in reference to employee benefit plans, portability is the ability of benefit plans to stay with the employee through a job change. The Consolidated Omnibus Budget Reconciliation Act, or COBRA, for example, allows employees to stay on their former employer's health plan for up to 18 months.

Portfolio lender

A portfolio lender is a financial institution that makes loans and keeps them in-house until they're paid off, rather than selling them to investors on the secondary market. The portfolio lender typically offers deposit services as well, and uses the deposits as a source of liquidity. Profits are generated by charging more on loans than paying out on deposits.

Portfolio runoff

Portfolio runoff is the reduction of outstanding mortgage principal (due to prepayments) within a mortgage-back security (MBS) portfolio. If interest rates change significantly, homeowners are inclined to refinance at the lower market rates. When they do, the MBS portfolio and its expected income over time are both reduced.


POS, or point-of-sale, is the location where retail sales are transacted. In a retail location, this is the area near the cash registers. In an Internet store, the POS is the interface that accepts the consumer's payment information.

Positive carry

Positive carry describes a situation where two related cash flow positions net out to a positive number, thus creating a profit. A simple example would be borrowing money at 8 percent, and investing it to return 10 percent. The 2 percent difference is your profit.

Positive yield curve

Positive yield curve describes the economic environment in which, for two comparable interest-bearing investments, long-term yields are higher than short-term yields. This situation indicates that interest rates are expected to go up in the future.

Postnuptial agreement

A postnuptial agreement is a legal arrangement between a husband and wife that specifies how their property is to be distributed in a death or divorce. Normally, both husband and wife must retain separate legal representation.

Pour-over will

A pour-over will is a legal document that expresses an individual's desire to have all of his assets placed in a pre-existing trust upon his death. The trust itself is the primary vehicle for distribution of the estate's assets, but the pour-over will provides an added mechanism for directing the asset distribution.


A PPO is a type of healthcare coverage that combines the characteristics of fee-for-service and HMO plans. The insured has the option to choose healthcare providers, but receives more expansive coverage when visiting providers are approved by the plan.

Pre-admission authorization

Pre-admission authorization is permission to begin an in-patient stay or procedure, provided to an insured by an insurance provider. In some healthcare policies, the insured must receive pre-admission authorization or coverage won't be provided.

Preapproval letter (mortgage)

A preapproval letter (mortgage) is a document produced by a mortgage lender or broker that provides an estimate of how much an individual would be able to borrow in the current interest rate environment. A preapproval letter can be submitted with an offer to make the seller feel more comfortable about the buyer's prospect of obtaining financing.


Pre-approved describes credit card offers that result from cursory credit screenings. An individual who receives a pre-approved offer isn't guaranteed to receive the credit card account. If, for example, the individual states his income as zero, the card application is likely to be declined, regardless of the pre-approved status.

Pre-computed loan

A pre-computed loan is a type of auto loan facility. It's structured with a standard amortization table, such that the total interest is determined before the loan is funded. This total interest is added to the loan amount, and your payments are applied to the combined balance. When a borrower agrees to a pre-computed loan, he's agreeing to pay back the total interest and principal, even if the loan is paid off early.

Predatory lending

Predatory lending describes the practice of dishonest or unethical conduct by loan brokers and lenders for the purposes of persuading borrowers to take inappropriate, over-priced loans. The federal government and some state governments have laws prohibiting predatory lending.

Preferred debt

Preferred debt is an amount owed that has repayment priority over another debt. In reference to mortgages, for example, a first mortgage has a higher lien position than a second mortgage. Of the two loans, therefore, the first mortgage is the preferred debt.

Preferred provider organization

A preferred provider organization, or PPO, is a type of healthcare coverage that allows the insured to select from lower-cost, network providers and higher-cost, out-of-network providers. Coverage applied to in-network healthcare is generally more expansive and costs less than coverage applied to out-of-network care.

Preforeclosure sale

Preforeclosure sale is a property sale that takes place in lieu of foreclosure, where the money raised by the sale is used to pay off the debt. In many cases, the funds raised are less than the amount owed and the lender must write-off the difference. Preforeclosure sales can only proceed with approval from both the borrower and the lender.

Premature distribution

A premature distribution is a taxable, penalized withdrawal made from a tax-advantaged retirement plan. An example of a premature distribution is the removal of funds from an IRA before the accountholder reaches the age of 59 1/2. This type of withdrawal is subject to a 10 percent penalty.


A premium is the cost of an insurance policy. Premium can also mean the amount paid for something over and above its stated value. A concert-goer, for example, would probably pay a premium for front row seats.

Prenuptial agreement

A prenuptial agreement a legal arrangement between a man and woman who intend to marry. The agreement specifies how their property is to be distributed in the event of divorce. The prenuptial agreement can also outline each person's rights and responsibilities while the marriage is in force.

Prepaid expenses or prepaid items or prepaids

Prepaid expenses, prepaid items or prepaids are business balance sheet assets that are created when goods and services are paid for in advance. Consider, for example, a business that pays its insurance premiums in December for policies that are in force for the following calendar year. Rather than account for this transaction as an expense in December, the premium amount is held in a balance sheet account (called prepaid expenses). and expensed periodically throughout the following year. Doing so matches the expense with the timing of the benefit received.

Prepayment plan

A prepayment plan is a mortgage payment plan that's managed by a third party. The mortgage borrower makes biweekly payments to the third party, which then funds the borrower's required monthly payment. After one year, the borrower will have made 26 half-payments, which amounts to 13 total payments to the third party. Over the same time period, the mortgage lender will only require 12 payments due. The third party sends the lender the additional amount as an extra principal payment. Over time, this dramatically reduces the mortgage interest costs, and shortens the length of the loan.

Prepayment privilege

Prepayment privilege is a debt option that allows the borrower to pay off the debt before maturity.

Prepayment risk

Prepayment risk is the risk of suffering lost income on a fixed-income security due to early payoff of the outstanding debt. On a mortgage-backed security (MBS), for example, the underlying mortgage borrowers may refinance their mortgages if markets rates go down significantly. When this happens, the income-producing asset pool of mortgage loans is reduced; investors, therefore, ultimately receive a lower yield on their investment. Some securities are structured with protections against prepayment risk.

Prepayment speed

Prepayment speed is an estimate for how quickly mortgage borrowers in a securitized pool of mortgage loans will refinance or repay their mortgages. Prepayment speed is an indication of prepayment risk associated with a particular issue of mortgage-backed securities (MBS). Investors look at prepayment speed when judging the value of a particular MBS investment.


Prequalification is the process of estimating how much a prospective homebuyer can borrow based on current interest rates and the borrower's stated income. Prequalification doesn't represent a binding loan approval.

Previous balance

Previous balance, in an open-ended credit arrangement, is the amount of revolving debt outstanding at the beginning of a billing cycle. Some credit agreements calculate interest on the previous balance amount, which results in higher interest costs to the borrower.

Previous balance method

Previous balance method is a means of calculating interest charges on a revolving credit account, such as a credit card. The interest rate is applied to the entire amount outstanding at the start of the billing cycle, regardless of whether any of this balance was paid down during the billing cycle. The previous balance method usually results in higher interest charges than other methods.

Primary care network

Primary care network is a group of healthcare professionals who provide healthcare services to a defined set of insured individuals. These providers are the first point of contact when an insured is in need of healthcare services. The insurance plan creates and defines the primary care network.

Primary mortgage market

The primary mortgage market is the industry that originates mortgage loans, inclusive of mortgage lenders, brokers, and borrowers. The primary functions associated with originating mortgage loans are differentiated from the activities in the secondary mortgage market, where funded mortgage loans are bought and sold as investments.


Prime describes the best-qualified borrower, as in: "Only prime borrowers will qualify for this low rate." The term is related to the prime rate, which is a base lending rate reserved for the most creditworthy borrowers.

Prime accounts

Prime accounts are accounts receivable that are high enough quality to be included as collateral for a business loan. The loan agreement will provide an exact definition of prime accounts, but generally, they have to be current and held by creditworthy customers. Prime accounts are also called eligible accounts.

Prime bank

Prime bank, in proper usage, describes a large, reputable international bank. In more common usage, however, the term is used by con artists when scamming investors out of money. The SEC has published warnings to consumers and investors to be cautious about dealing with anyone who describes high yield investment programs backed by a prime bank. Often, these investment programs are fictitious, and the investors lose their money.

Prime conforming

Prime conforming describes a mortgage loan made to a well-qualified borrower in an amount that's within the conforming limits set by the Office of Federal Housing Enterprise Oversight (OFHEO). Prime refers to the borrower's creditworthiness; conforming refers to the conservative loan size and structure, which makes the loan eligible for resale to, or guarantee by, Fannie Mae and Freddie Mac.

Prime for life

Prime for life is a line of credit whose interest rate is the prime rate with no margin. Since the prime rate is a variable value, a prime for life loan is a variable-rate instrument. Only the most creditworthy borrowers normally qualify for a prime for life debt.

Principal amount

Principal amount is the loan amount at funding, and the amount that has to be repaid when the loan matures, excluding interest and debt charges.

Principal balance

Principal balance is the amount owed on a debt. At funding, the principal balance is the loan amount. If payments have been made on the debt, the principal balance is the remaining, unpaid amount.

Principal residence

Principal residence is the place where one lives most of the time. The distinction between a principal residence and secondary property is important when determining tax liability on any gains earned by selling the property.

Principal risk

Principal risk is the danger of losing invested funds due to bankruptcy or default. Before an investor buys an equity share in a company, for example, she must assess the probability that the company will become insolvent and be unable to return her investment.

Principal, interest, taxes, insurance - PITI

Principal, interest, taxes, insurance, or PITI, are the different parts of a complete mortgage payment. Principal is the amount applied to the debt balance, interest is the monthly accrued financing charges, taxes are pro-rated amounts applied to the annual tax bill, and insurance is the mortgage insurance premium.

Prior redemption privilege

Prior redemption privilege is synonymous with prepayment privilege; it's a borrower's contractual right to pay off debt early without penalty. A borrower would choose to do so if interest rates drop such that refinancing the debt would result in lower interest charges.

Prioritization of debt

Prioritization of debt is the placement of amounts owed in primary, secondary, and tertiary positions. Primary debt is the first to be repaid if the borrower becomes insolvent and must liquidate assets to pay off creditors.

Private annuity

Private annuity is an annuity contract made between two parties, neither of which is an insurance company in the business of selling annuities. An annuity is an arrangement whereby one party pays a fee, or transfers assets to another party in exchange for a guaranteed stream of income payments. There may be certain tax benefits associated with setting up a private annuity as a means of transferring assets to a family member.

Private banking

Private banking refers to the expanded set of services financial institutions offer to their wealthy customers. These services might include financial and estate planning, investment management, etc. Customers must meet minimum deposit requirements to have access to private banking services.

Private college/university

A private college/university is an institution of higher learning that doesn't receive public funds. These colleges and universities are usually characterized by higher tuition rates, smaller classes and, sometimes, more specialized programs.

Private debt

Private debt is an economic term referring to the total money owed by individuals and businesses within a country.

Private investment fund

A private investment fund is a company that issues securities to an exclusive group of investors, and is exempt from certain SEC regulations. To be considered an exempt, private investment fund, the entity must have fewer than 100 investors, or its investors must have large amounts of money invested in other places. The exemption from SEC regulation provides private investment funds with an added level of flexibility in pursuing specialized investments.

Private label cards

A private investment fund is a company that issues securities to an exclusive group of investors, and is exempt from certain SEC regulations. To be considered an exempt, private investment fund, the entity must have fewer than 100 investors, or its investors must have large amounts of money invested in other places. The exemption from SEC regulation provides private investment funds with an added level of flexibility in pursuing specialized investments.


Probate is the process of establishing a will's legal validity.


Probate is the process of establishing a will's legal validity.


A profile, in general, is a summary of data, such as the set of information kept on file for customers, vendors, students, employees, etc.

Progressive tax

Progressive tax is an assessment that's charged at a higher rate to higher-income individuals. Income taxes are usually progressive.

Projected maturity date

Projected maturity date is an estimate of the date on which an obligation will be fulfilled. In collateralized mortgage obligations (CMOs), the projected maturity date is the date the final payment is expected to be made.

Proof of claim

A proof of claim is a written filing made by a creditor during bankruptcy proceedings, which describes the nature of the debtor's obligation to the creditor.


Property is something owned. There are several types of property, such as personal, real estate, and intangible. Personal property includes movable objects, such as boats, cars, clothes and jewelry. Real estate property is land. Intangible property includes patents and trademarks.

Property report

A property report is a compilation of data on undeveloped land that's filed with the U.S. Housing and Urban Development's Office of Interstate Land Sales Registration.

Proportional tax

Proportional tax is an assessment system that calculates taxes at the same rate for all individuals within the tax jurisdiction. The U.S. and Canada do not use proportional taxes.

Proprietary lease

A proprietary lease is a property use arrangement provided by a corporation to a co-op owner. When an individual buys into a co-op building, the ownership arrangement gives the owner a certain number of shares in the co-op, along with a proprietary lease for one of the residences in the building.

Prudent-Person Rule

The Prudent-Person Rule is a legal concept that seeks to protect investors from advisors who employ risky investment strategies on behalf of their customers. Investment advisors are required to act with discretion and limit investment choices to securities that a reasonable or prudent person would buy for her own portfolio.

Public college/university

Public college/university is an institution of higher learning that's partially funded by the state. Public colleges and universities generally have much lower tuition rates, and are therefore more accessible to the general population.

Public record

Public record is a general term for legal documentation or property ownership information that's kept available for public review. Court records and certain documents pertaining to real estate transactions are often part of the public record.

Public Securities Association Standard Prepayment Model - PSA

Public Securities Association Standard Prepayment Model, or PSA, is a method of quantifying and planning for prepayment risk associated with a pool of mortgage loans backing a security issue. The model assumes that the rate of prepayments will gradually rise over the life of the mortgage loans.

Punch list

A punch list is an account of items that need to be addressed. In construction projects, punch lists are used to document unfinished items or items that need repair. Punch lists can also be used to document repairs that need to be made before a property sale is finalized.

Punitive rate

Punitive rate is a high interest rate charged by credit card issuers to accounts that are in bad standing. Punitive rate may also be called default rate, and may result from missed payments, or charges that are in excess of the credit line.

Purchase mortgage market

The purchase mortgage market is the portion of the mortgage origination industry that deals with home purchases, and doesn't include refinance mortgages.

Pure lease

Pure lease, also called a true lease, is an arrangement between a lessor and lessee that doesn't allow the lessee with the option to purchase the leased property or renew the lease term. Pure leases are usually used for short-term equipment financing.

Purpose loan

 A purpose loan is a debt instrument that's collateralized by security holdings and used to finance the purchase of additional security positions. Purpose loans are subject to Federal Reserve Board restrictions and margin requirements.