L
Liquidity – the quality of an asset that permits it to be converted quickly into cash without loss of value. For example, a mutual fund is more liquid than real estate.
Living will – a document that contains the signer’s desires for specific medical treatment in case the person is unable to make medical decisions; also known as a health care directive.
Loan – a contractual promise between a borrower and a lender; the borrower agrees to repay a sum of money (generally with interest) in exchange for the lender giving another sum of money.
Loan shark – an unlicensed person who lends money at an exorbitant rate of interest.
Loss Mitigation – a situation where the lender will help the borrower when they are in danger of default to avoid foreclosure.
M
Master Promissory Note (MPN) – the legal agreement that a student makes with the lender when receiving an education loan. The MPN lists conditions under which the money is borrowed and the terms under which the borrower agrees to repay the student loan with interest.
Mortgage – a long-term loan to buy real estate; that is, land and the structures on it.
Mortgage company – a firm or individual who brings the borrower and lender together, receiving a commission if a sale results.
Mutual fund – an investment tool that pools the money of many shareholders and invests it in a diversified portfolio of securities, such as stocks, bonds, and money market assets.
N
Negative Amortization – this happens when the interest due on the loan is more than the monthly payments. The balance unpaid interest is added to the balance of the loan. In negative amortization, the loan of the borrower increases and thus he ends up owing more than the original loan.
NSF (Non-Sufficient Funds) – an NSF is issued by a bank when there is not enough money in the account to cover the amount of the check or transaction.
O
Open-end credit – an agreement with a financial institution that gives a borrower the use of money up to a specified limit for an indefinite time as long as repayment of the outstanding balance and finance charge proceeds on schedule; also known as revolving credit or a revolving line of credit. A credit card is an example.
Origination Fees – fees charged by the lender for processing the loan and are often expressed as a percentage of the loan amount.
P
Payday loan – an easy-access credit business that makes high interest loans for the period of the borrower’s pay cycle. This practice is illegal in some states.
Personal income tax – taxes paid on personal income to the state and federal governments.
Portfolio – a collection of securities—such as stocks, bonds, mutual funds, and real estate—that an individual investor owns.
Points-mortgage – a one-time service charge by mortgage lenders at closing to increase the return on the loan; each point is one percent of the amount of the principal.
Predatory Lending Practices – any of a number of fraudulent, deceptive, discriminatory, or unfavorable lending practices. Many of these practices are illegal, while others are legal but not in the best interest of the borrowers. Lending practices which promise loans that are “too good to be true” and pressure borrowers to take loans on the spot. Lending practices include a variety of financial abuses such as excessive fees, penalties for early pay-off of the loan, balloon payments, loan flipping, high interest rates, monthly payments the borrower can not afford, and unauthorized refinancing of loans. Examples of the practice include predatory mortgages, payday loans, overdraft loans, excessive credit card debt, and instant tax refund loans.
Principle – (1) an amount of money originally invested, excluding any interest or dividends; (2) an amount borrowed, or an outstanding loan balance.
Prospectus – a legal document that provides detailed information about mutual funds, stocks, bonds, and other investments offered for sale, as required by the Securities and Exchange Commission (SEC).
