Glossary

 

401(k) plan

This is a retirement plan in which an employee can contribute a percent of his gross salary - up to $15K in 2007 and 2008 - in a company's pension plan. Income tax is deferred on the contribution and the earnings on the investment.

 

Accrued interest

Interest that has accumulated but has not been paid.

 

Balloon mortgage

A mortgage that has a larger final payment than the previous payments. Sometimes this results from interest rate increases during the life of the loan.

 

Annuity

Contract sold by life insurance companies that guarantees the purchaser fixed or variable future payments, usually upon retirement. Earnings grow tax-deferred within the annuity until the contract begins payouts.

 

Assignment of mortgage

A document that transfers a loan obligation from one owner to another.

 

Assumable mortgage

An agreement whereby the buyer takes over the previous owner's mortgage, usually resulting in a lower interest rate for the buyer.

 

Certificate of deposit (CD)

An investment vehicle issued by a bank that will pay interest, periodically or at maturity. The interest rate is set by competitive forces in the economy. The principal is paid back at maturity.

 

Common stock

A share of the ownership of a public company. It gives the owner the right to receive declared dividends and to vote on certain corporate decisions. The owners of the common stock are the last to participate in the receipt of assets if the company liquidates.

 

Defined benefit plan

A pension plan that stipulates the exact amount of a beneficiary's retirement benefits

 

Dividend

The return of profits to the company's shareholders. Dividends can be either in cash or in stock and are distributed on a per-share basis.

 

FHA loan

This is a loan backed by the Federal Housing Administration and is the largest source of mortgage assistance available to the general public. FHA loans features low down payments and can be assumable under certain conditions.

 

Individual retirement account (IRA)

Generally, employed individuals not involved with a company or union pension can make deductible payments of up to $4,000 into a tax-deferred fund. Withdrawals can be made without penalty after age 59 1⁄2.

 

Keogh Plan

A tax-sheltered, self-funded pension plan available to those who are self-employed or have part-time self-employment income. Contributions can be any investment vehicle except precious metals and collectibles.

 

Load

A sales charge or commission assessed by mutual funds (called "load funds") to cover their selling costs.

 

No-load fund

A commission-free mutual fund that sells its shares at net asset value.

 

Short sale

The sale of a security that the seller doesn't own but hopes to be able to buy back at a lower price, thus profiting from the difference. This can be accomplished only with a brokerage firm that lends the seller the security so that it can be delivered to the buyer.

 

Term insurance

Insurance that provides a death benefit for a specific period of time. If you die during the specified term, your beneficiary receives the proceeds ... no cash value build-up

 

Universal life

Adjustable insurance policy that breaks out the cost of the death benefit, the investment account, and administrative expenses. The policyholder can increase, decrease or skip the payment.

 

VA loan

This is a mortgage loan in which the Veteran's Administration acts as a co-signer to assist qualified individuals who need home mortgages. Most veterans and those currently in the armed services qualify. Its main attraction is the low down payment and the assumability by a new buyer under certain conditions.

 

Variable annuity

An annuity contract investment in a various portfolio yielding lifetime retirement payments that vary according to the results of the investments.

 

Variable life

Permanent insurance with the cash value invested in a self-controlled account.

 

Whole life

A policy that covers you for your entire life. The excess premium that are paid in the earlier years go into a tax-deferred savings or investment account.

 

Zero-based budgeting

A method of budgeting in which all spending must be justified rather than based on spending in preceding years. Therefore, all budget lines start at zero.