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101 PLAN

Glossary

The following glossary of financial terms will help you understand many of the key ideas to successfully managing your finances.

A | B | C | D | E | F | G | H | I | L | M | N | P | R | S | T | U | V | W | Y

A


Amortization
A series of payments over a specific period of time calculated to fully pay the loan amount plus interest by the end of the life of the loan.

Annual Percentage Rate (APR)
Cost of credit calculated as an annual percentage.

Application Fee
Fees that are paid at the time of application. An Application fee may include charges for a property appraisal and a credit report.

Appraised Value
The value of your home based on current market conditions.

Asset
Something of value owned by a firm, household, or individual; what the company owns after debts are paid.

B

Bankruptcy
The last resort for a borrower. If the borrower cannot make payments, is completely extended beyond the creit limit, and the collection agencies are uncooperative; the borrower may need to file for protection.

C


Cap
A limit on how much the variable-interest rate can increase during the life of the line of credit.

Certificate of Deposit (CD)
Certificate issued by banks guaranteeing repayment of principal at a fixed rate of interest after a specified period of time. Checking Account
Bank account which allows the depositor to write checks.

Checks
Written orders directing a bank to pay a person or business a specific sum of money.

Closing
The time an place at which all documents for your loan are signed, dated and notarized.

Closing Cost
Fees paid at closing, that may include attorneys' fees, fees for preparing and filing a mortgage, for taxes, title search, and insurance.

Collateral
Something with monetary vaule pledged as security for a loan.

Compound Interest
Interest computed on the sum of the principal and the interest previously paid.

Consolidating
To combine into a single whole; to make one.

Credit
Enables purchaser to enjoy goods or services before paying for them fully.

Credit Card
Card that enables its holder to charge expenses.

Credit Limit
The maximum amount that you can borrow under a home equity line of credit.

Creditor
One who lends money to another.

D


Debt-to-Income-Ratio
An indicator of your ability to take on debt, this ratio is the relationship between your monthly income before taxes and the amount of your minimum monthly debt payments.

Deduction
Amount allowed to taxpayers under the Internal Revenue Code as an offset against gross income or adjusted gross income.

Depreciation
Calue lost in assets as they wear out or become obsolete.

Direct Deposit
Arrangement whereby a dividend or other receipt can be deposited to the recipient's checking or savings account, often by electronic mail.

Disposable Income
Money left after buying necessities.

Draw Period
On a home equity line of credit the period of time where you can both draw and repay funds as long as you never exceed the credit limit. During the draw period you are only required to make interest payments and not principal repaymnets.

E


Equity
The difference between the appraised value of your home and the outstanding mortgage balance(s) against your home; or ownership in a business.

F


Federal Deposit Insurance Company (FDIC)
federally sponsored corporation that insures accounts in national banks and other qualified institutions.

Fixed Rate
An interest rate that does not change during the life of the loan.

Fixed Rate Mortgage
Mortgage in which the interest rate does not change during the entire term of the load, most often 15 years or 30 years.

G


Grace Period
Interest-free period of time a lender allows between the transaction date and the billing date. The standard grace period is usually between 20 and 30 days.

H


Home Equity Installment Loan
Loan with equal amortization that is secured by your home and is fully drawn at closing.

Home Equity Line of Credit
A revolving line of credit secured by your home.

I


Income
Money earned through employment and investments.

Index
The base for rate changes that a lender uses to decide how much the annual percentage rate will change over time. One example of an index is the Wall Street Journal Prime Rate.

Individual Retirement Account (IRA)
Self-funded retirement plan that allows contributions toward retirement; taxes on the interest earned in the account are deferred. Inflation
Period of rising prices when the purchasing power of the dollar is falling.

Interest
Payment for using someone else's money; income from allowing someone else to use one's capital.

Interest Rate
The periodic charge, expressed as a percentage, for the use of credit.

Interest Rates
Percentage of a sum of money charged for its use.

Internal Revenue Service (IRS)
Government agency that collects income taxes.

Investment
Purchase of capital resources used to produce goods and services; it may consist of shares in a corporation, real estate, or plant and equipment.

L


Liability
Any claim, or debt, of an individual or business; what a business owes.

Loan
sum of money lent at interest.

Loan Consolidation
Loan that combines and refinances other loans or debt.

Loan Default
Not repaying loans on time; loans may be turned over to a collection agency.

Loan-to-Value (LTV) Ratio
The amount of the new loan or line of credit added to the balance of any existing loans and then divided by the market value of your home.

M


Margin
The number of percentage points the lender adds to the Index to determine the annual percentage rate to be charged.

Minimum Payment
The minimum amount that you must pay (usually monthly) on your account. For home quity lines of credit, the minimum payment is interest only during the draw period. For home equity installment loans and home equity lines of credit, the minimum payment

Money Market Account
Savings account that offers higher interest rates than most savings accounts and is insured by the FDIC.

Money Market Funds
Mutual funds that use the resources of their investors to buy money market certificates.

Mortgage
Long-term loan to purchase property.

Mutual Funds
Special investment companies in which people pool their savings to diversify their investments.

N
Net Income
Money earned after taxes are deducted.

Net Worth
The difference between a firm's assets and its liabilities

P


Periodic Rate
Variable rate on a credit card that may increase or decrease each quarter. If the rate increases, the finance charge will increase and the minimum payment due may be greater.

Principal
Face value of an obligation, such as a bond or a loan, that must be repaid at maturity.

R


Rate of Inflation
Annual percentage increase in the general level of prices.

Rate of Return
Percentage of interest or dividends earned or paid on the principal of an investment.

Refund
Paid to a taxpayer by the IRS when withholding and estimated tax payments exceed tax for the year.

Risk
Danger or probability of loss to an insurer or the amount that a company stands to lose; the variability of returns from an investment; the chance of nonpayment of a debt.

Risk Management
Minimizes possible financial loss by identifying potential sources of loss, measuring the financial consequences of a loss, and creating a risk management plan for actual losses and their financial consequences.

S


Salary
Earnings of workers paid on a weekly or monthly basis.

Savings
Amount of money put aside for later use.

Savings Account
Deposit account that pays interest, usually from day of deposit to day of withdrawal.

Savings Bond
Bond that is issued by the United States government and is insured for the full investment and interest.

Securities
Document indicating ownership or creditorship; a stock certificate or bond.

Securities and Exchange Commission (SEC)
Federal agency responsible for protecting investors in the sale of securities.

Security Interest
An interest that a lender takes in the borrower's property to ensure repayment of a debt, i.e. a mortgage.

Stock
Shares in the ownership of a corporation.

Stock Market
General term for the organized trading of stocks through exchanges and over-the-counter.

Stockholder
Owner of stock in a corporation.

Surplus
How much more of a product sellers want to sell than buyers want to buy at a given price. In budgeting, a surplus occurs when income exceeds expenditures.

T


Tax Credits
amount of money that taxpayers can deduct directly from their taxes. Tax credits are available for purposes such as child care expenses and the earned income credit for low-income taxpayers.

Tax Deductions
amount that a person or business can subtract from their taxable income.

Tax Exemptions
part of the total income on which no tax is imposed.

Treasury Bills
securities of the federal government issued for terms of less than a year. The purchasers are lending money to the government.

U


U.S. Savings Bonds
small denomination certificates issued by the U.S. government for relatively long terms.

V


Variable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease when the index increases or decreases.

W


Wages
earnings of workers paid by the hour or unit of production.

Whole Life Insurance
insurance plan with steady premiums and coverage and accumulating cash value.

Y


Yield
actual amount of interest earned; depends on the rate of return and the frequency of compounding.

 



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