Money Talks: 10 Financial Terms You Should Know + What They Mean – LALtoday

Whether you are regularly read financial news as part of your daily summary or it is one of your goals to invest more in your personal finances, understand common financial conditions (and why they are important) can help you manage your money well (Lily: more peace of mind when to heal at Nineteen61 or Lakeside Village).

To help you better understand frequently used financial jargonwe will give you a fast bait – and a chance to ask financial questions your own. 💬

GAP insurance

GAP insurance covers drivers if their vehicle is totaled and they owe more than the value of the vehicle. Think: GAP insurance fill this void so that you don’t end up paying out of pocket.

FICO

Acronym for Fair Isaac Corp. (Lily: the company that invented the methodology for calculating a credit score), your FICO score is based on several factorsincluding:

  • Payment history
  • Length of your credit history
  • Your total amount due

FICO scores range from 300-850. The upper the score, the better the conditions you may receive on your next loan or credit card.

Rather than calculating it yourself, you can ask one of the mortgage experts at Publix Employees Federal Credit Union (PEFCU) to estimate the expected closing costs when you apply for pre-approval. | picture by Wagner Houses page and Megan’s Swamp through PEFCU, federally insured by NCUA.

Crook

Escrow is a legal arrangement in which a third temporarily holds money or property until one particular state was met.

During the home buying processthe buyer will deposit a fixed amount in an escrow account (Lily: a impartial third party account) which neither party can access until all the terms of the purchase agreement, i.e. pass an inspectionhave been fulfilled + the sale is concluded.

An escrow account can also hold money that can be used to pay:

  • home insurance
  • Property taxes
  • Premiums

Read on for four additional financial sentences (think: compound interest, 401k + Roth and APR) to get familiar with.

Fixed rate vs variable rate

A fixed rate mortgage is a type of loan with a fixed interest rate. Lily: If interest rates go up, homeowners with a fixed rate mortgage don’t have to worry about their payments going up.

However, if interest rates fall, the homeowner could be locked into a more expensive mortgage.

A variable interest rate is an interest rate on a loan that fluctuates over time because it is based on a underlying reference interest rate (it depends on the type of loan) which changes periodically. If the interest rate decreases, the borrower’s interest payments will also decrease.

APR versus APY

APR + APY/EAR:

  • Measure interest
  • Can be helpful in deciding which credit or deposit account is right for you

APR measures interest accusedwhile APY/EAR measure the interest won.

APR is usually associated with credit accounts. The lower the APR on your account, plus your overall borrowing cost could be.

APY is usually associated with deposit accounts. The plus the APY on your account, increase your earnings Perhaps.

Retirement account (401k + Roth)

401(k)s and Roth IRAs allow your savings to grow tax-free.

However, these retirement savings accounts are distinguished by:

  • Tax treatment
  • Investment opportunities
  • Employer contributions

Contributions to a 401(k) are deposited before deducting your income taxes of your salary. Once you retire, all withdrawals are taxed at your current tax rate.

With a Roth IRA, there is no tax savings or deductions for your contributionsand bonuses: they can be removed tax free once you have reached retirement.

Compound interest

To put it plainly, compound interest is interest you earn on interest.

For example, when you add money to a savings account, you receive interest depending on the amount you deposited. So if you deposit $5,000 into an account that earns 1% annual interest, you’ll earn $50 interest after one year.*

Question

What personal finance questions do you want answered? Let us know and we’ll forward your questions to the experts for answers.