Financial Terms 201

October 31, 2023

by Christian Phillips

Financial Terms 101
Continue to expand your financial literacy with the following terms: 

DTI:
Debt-to-income ratio (DTI) is the percentage of your gross monthly income (pre-tax) that goes toward monthly debt payments. For example, mortgage, car payment, and credit card bills. Lenders will calculate your DTI to help determine your “creditworthiness,” also known as “borrowing risk.”   

FDIC:
Federal Deposit Insurance Corporation is an independent agency of the U.S. government that insures customer deposits up to $250,000 in situations where your financial institution fails. 

HELOC:
A Home Equity Line of Credit (HELOC) is a revolving credit based on the value of your home or the amount of equity you have invested. Consumers apply for HELOCs to fund home improvement projects. These projects can include remodeling the kitchen, bathroom(s), bedroom(s), landscape, and more. 

HSA:
A Health Savings Account (HSA) is a high-deductible savings account that can cover medical expenses. HSA eligibility depends on whether the individual has a high-deductible health care plan. 

IRA:
An Individual retirement account (IRA) allows you to invest toward retirement with tax-free growth or on a tax-deferred basis. 

Mortgage Points:
Also known as “discount points” or “buying down the interest rate,” mortgage points can help homeowners reduce their interest rates. Points are not always required to be paid upfront; they can sometimes be charged to the loan balance or paid by the seller. 

PMI:
Private Mortgage Insurance (PMI) insures the lender against potential losses associated with defaults on a mortgage. For example, the homebuyer fails to make monthly mortgage payments. PMI is usually required on conventional loans when the homebuyer supplies a down payment of less than 20 percent (Equity Invested). 

Savings Account:
Savings accounts are typically interest-bearing and can be used for storing funds to help you reach short and long-term financial goals.
 

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