Finance glossary

Plain-English definitions for the terms you'll meet in our calculators. Each entry links from the calculators that reference it.

• 401(k)

  An employer-sponsored retirement account funded with pre-tax payroll deductions.

• Amortization

  Paying down a loan with equal periodic payments split between principal and interest.

• APR (Annual Percentage Rate)

  The true yearly cost of borrowing — interest plus most fees.

• ARM (Adjustable-Rate Mortgage)

  A mortgage where the rate can change at fixed intervals.

• Compound interest

  Interest earned on previously-earned interest, not just the original principal.

• Discount points

  Paying upfront cash to lower your interest rate.

• Down payment

  The cash you pay up front toward a home purchase.

• DTI (Debt-to-Income Ratio)

  Your total monthly debt payments divided by gross monthly income.

• Escrow

  Money held by the lender to pay your taxes and insurance.

• FICA

  The federal payroll taxes that fund Social Security and Medicare.

• Fixed-rate mortgage

  A mortgage where the interest rate stays the same for the entire term.

• HOA (Homeowners Association)

  A monthly fee for shared amenities and maintenance in condos and planned communities.

• Interest rate

  The percentage charged annually for borrowing money.

• LTV (Loan-to-Value)

  Loan amount divided by home value, expressed as a percentage.

• Marginal tax rate

  The tax rate on the next dollar you earn.

• Monthly compounding

  Interest credited to your balance every month, then earning interest itself.

• PITI

  Principal + Interest + Taxes + Insurance — your true monthly housing cost.

• PMI (Private Mortgage Insurance)

  Insurance that protects the lender if you default — required when you put less than 20% down.

• Principal

  The amount you borrowed (or still owe).

• Refinance

  Replacing your existing mortgage with a new one — usually for a lower rate or different term.

• Roth IRA

  An after-tax retirement account where withdrawals in retirement are tax-free.

• Safe withdrawal rate

  The percentage of your nest egg you can withdraw annually without running out.

• Social Security wage base

  The yearly wage cap above which Social Security tax stops being collected.

• Standard deduction

  A flat amount you can subtract from taxable income without itemizing.