Unit 2 Personal Finance Exam
interest earning checking accounts
NOW accounts, usually require a minimum balance. If the account balance goes below this amount, you not earn interest and will likely incur a service charge
Fair Credit Reporting Act
Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected
passive activity
a business or trade in which the investor does not materially participate
second mortgage
a cash advance based on the paid-up value of a home; also called a home equity loan
automatic teller machine (ATM)
a computer terminal used to conduct baking transactions; also called a cash machine
corporate bond
a corporation's written pledge to repay a specified amount of money, along with interest
dividend
a distribution of money, stock, or other property that a corporation pays to stock holders
deed
a document that transfers ownership of property from one party to another
Truth in Lending Law
a federal law that requires creditors to disclose the annual percentage rate (APR) and the finance charge as a dollar amount
Fair Debt Collection Practices Act (FDCPA)
a federal law, enacted in 1978, that regulates debt collection activities
mutual savings bank
a financial institution that is owned by depositors and specializes in savings accounts and mortgage loans
commercial bank
a financial institution that offers a full range of financial services to individuals, businesses, and government agencies
savings and loan associations
a financial institution that traditionally specialized in savings accounts and mortgage loans
real estate investment trust (REIT)
a firm that pools investor funds and invests them in real estate or uses them to make construction or mortgage loans
conventional mortgage
a fixed-rate, fixed-payment home loan with equal payments over 10,15,20,25, or 30 years
cooperative housing
a form of housing in which a building containing a number of housing units is owned by a nonprofit organization whose members rent the units
speculative investment
a high-risk investment made in the hope of earning a relatively large profit in a short time
adjustable-rate mortgage (ARM)
a home loan with an interest rate that can change during the mortgage term due to change in market interest rates
manufactured homes
a housing unit that is fully or partially assembled in a factory before being moved to the living site
trust
a legal agreement that provides for the management and control of assets by one party for the benefit of another
lease
a legal document that defines the conditions of a rental agreement
bankruptcy
a legal procedure for dealing with debt problems of individuals
rate cap
a limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage
payment cap
a limit on the payment increases for an adjustable-rate mortgage
open-end credit
a line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment
home equity loan
a loan based on the current market value of a home less the amount still owed on the mortgage
reverse mortgages
a loan based on the equity in a hoe, that provides elderly homeowners with the tax-free income and is paid back with interest when the home is sold or the homeowner dies
installment sales credit
a loan that allows you to receive merchandise. You make a down payment and sign a contract to repay the balance in installments over a specified period
single lump-sum credit
a loan that must be repaid in total on a specified day
Consumer Credit Counseling Service (CCCS)
a local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems
mortgage
a long-term loan on a specific piece of property such as a home or other real estate
rule of 78s
a mathematical formula to determine how much interest has been paid at any point in a loan term
previous balance method
a method of computing finance charges that gives no credit for payments made during the billing period
average daily balance method
a method of computing finance charges that uses a weighted average of the account balance throughout the current billing period
add-on interest method
a method of computing interest in which interest is calculated on the full amount of the original principal
declining balance method
a method of computing interest when more than one payment is made on a simple interest loan
interest
a periodic charge for the use of credit
debit card
a plastic access card used in computerized banking transactions; also called a cash card
earnest money
a portion of the price of a home that the buyer deposits as evidence of good faith to indicate a serious purchase offer
revolving check credit
a prearranged loan from a bank for a specified amount; also called a bank line of credit
compounding
a process that calculated interest based on previously earned interest
share accounts
a regular savings account at a credit union
credit bureaus
a reporting agency that assembles credit and other information about consumers
money market account
a savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earnings based on market interest rates
certificate of deposit (CD)
a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate
money market fund
a savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments
line of credit
a short-term loan that is approved before the money is actually needed
syndicte
a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital
credit union
a user owned, nonprofit, cooperative financial institution that is organized for the benefit of its members
collateral
a valuable asset that is pledged to ensure loan payments
Chapter 13 bankruptcy
a voluntary plan that a debtor with regular income develops and proposes to a bankruptcy court
traveler's check
allows you to make payments when you are away from home
emergency fund
amount of money you can obtain quickly in case of immediate need
asset management account
an all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a cash management account
credit
an arrangement to receive cash, goods, or services now and pay for them in the future
revolving line of credit
an arrangement whereby borrowings are permitted up to a specified limit and for a stated period, usually 5 to 10 years
overdraft protection
an automatic loan made to checking account customers to cover the amount of checks written in excess of the available balance in the checking account
participation certificate (PC)
an equity investment in a pool of mortgages that have been purchased by a government agency, such as Ginnie Mae
condominiums
an individually owned housing unit in a building with several such units
share draft account
an interest bearing checking account at a credit union
buy-clown
an interest rate subsidy from a home builder or a real estate developer purchased by the buyer that reduces a home buyer's mortgage payments during the first few years of the loan
credit insurance
any type of insurance that ensures repayment of a loan in the event the borrower is unable to repay it
Equal Credit Opportunity Act (ECOA)
bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors
activity accounts
charge a fee for each check written and sometimes a fee for each deposit, in addition to a monthly service charge
cashier's check
check of financial institution
incidental credit
credit arrangement that has no extra costs and no specific repayment plan
installment cash credit
direct loan of money for personal purposes, home improvements, or vacation expenses, no down payment, payments in specified amounts
closing costs
fees and charges paid when a real estate transaction is completed; also called settlement costs
title insurance
insurance that, during the mortgage term, protects the owner and lender against financial loss resulting from future defects in the title and from other unforseen property claims not excluded by the policy
simple interest
interest compounded on principal only and without compounding
indirect investment
investment in which a trustee holds legal title to property on behalf of the investors
direct investment
investment in which the investor holds legal title to property
commercial property
land and buildings that produce lease or rental income
equity capital
money that a business obtains from its owners
escrow account
money, usually deposited with the lending financial institution, for the payments of property taxes and home owner's insurance
Chapter 7 bankruptcy
one type of personal (or straight) bankruptcy in which many debts are forgiven
closed-end credit
one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts
certified check
personal check with guaranteed payment
Consumer Credit Reporting Reform Act
places the burden of proof for accurate credit information on the credit reporting agency
mutual fund
pools the money from many investors-its shareholders- to invest in a variety of securities
points
prepaid interest charged by a lending institution for the mortgage; each discount point is equal to 1% of the loan amount
collectibles
rare coins, works of art, antiques, stamps, rare books, and other items that appeal to collectors and investors
zoning laws
restrictions on how the property in an area can be used
Fair Credit Billing Act (FCBA)
sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments
liquidity
the ability to buy or sell an investment quickly without substantially affecting the investments value
adjusted balance method
the assessment of finance charges after payments made during the billing period have been subtracted
capital
the borrowers assets or net worth
character
the borrowers attitude toward his or her credit obligations
capacity
the borrowers financial ability to meet credit obligations
maturity date
the date on which a corporation, government, or municipality will repay the borrowed money
line of credit
the dollar amount, which may or may not be borrowed, that a lender makes available to a borrower
conditions
the general economic conditions that can affect a borrower's ability to repay a loan
business cycle
the increase and decrease in a nation's economic activity
annual percentage rate (APR)
the percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparison with other sources of credit
rate of return
the percentage of increase in the value of savings as a result of interest earned; also called yield
annual percentage yield (APY)
the percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365 day period
refinancing
the process of obtaining a new mortgage on a home to get a lower interest rate
asset allocation
the process of spreading your assets among several different types of investments (sometimes referred to as asset classes) to lessen risk
amoritization
the reduction of a loan balance through payments made over a period of time
economics
the study of how wealth is created and distributed
passive loss
the total amount of losses from a passive activity minus the total income from the passive activity
rate of return
the total income you receive on an investment over a specific period of time divided by the original amount invested
consumer credit
the use of credit for personal needs (except a home mortgage)
government bond
the written pledge of a government or a municipality to repay a specified sum of money, along with interest
finance charge
total dollar amount paid to use credit
regular checking accounts
usually have a monthly service charge that you may avoid by keeping a minimum balance in the account