Glossary

45 terms, in plain words.

Account value: The amount credited inside a policy or annuity before any surrender charge.
Accountable plan: A written company plan that reimburses employees for business costs tax-free, with records and the return of any excess.
Additional living expenses (ALE): Homeowners coverage that pays the extra cost of living elsewhere after a covered loss.
Amortization: How each payment is split between interest and principal over the life of the loan. Early payments are mostly interest.
Annual percentage rate (APR): The yearly cost of a loan including certain fees, shown so loans can be compared.
Applicable federal rate (AFR): The minimum interest rate the IRS expects on loans between family members, published each month.
Assumable mortgage: A loan a buyer can take over with its existing rate, usually FHA, VA or USDA loans.
Balance: What is still owed on the loan.
Basis: What you paid for an asset, plus improvements; the starting point for figuring gain when you sell.
Break-even: How long it takes for a saving to repay what it cost, such as closing costs on a refinance.
Closing costs: Fees paid to get a loan or complete a sale: appraisal, title, recording and lender fees.
Conservation easement: A permanent legal limit on developing land, given to a land trust or government, which can bring a tax deduction.
Debt management plan: A plan run by a nonprofit credit counselor that often lowers card rates; you pay one amount each month.
Depreciation recapture: Tax due on depreciation taken while a property was rented, collected when it is sold.
Equity: The home's value minus what is owed on it.
Escrow: An account the servicer uses to pay property taxes and insurance from part of each payment.
Escrow cushion: Extra money a servicer may hold in escrow, limited by federal rules.
Fact finder: The client's own record of balances, rates, income and goals; the only source of numbers for the calculators.
FHA streamline: A refinance of an FHA loan with less paperwork, when it lowers the payment or rate.
Five-year payment: The payment that would pay the balance off in 60 months at the current rate.
HECM: A Home Equity Conversion Mortgage, the federally insured reverse mortgage for homeowners 62 and over.
HELOC: A home equity line of credit: a revolving loan against the home, usually at a variable rate.
Home-sale exclusion: Up to $250,000 of gain ($500,000 married) left out of income when you sell a main home you owned and lived in 2 of the last 5 years.
Interest: The cost of borrowing, charged on the balance each month.
Letter of Map Amendment (LOMA): A FEMA letter stating that a structure sits above the mapped flood level, which removes the federal flood insurance requirement.
Lever: The calculator field a strategy feeds: a one-time amount, a monthly amount, a yearly amount or a new rate.
Lifetime gift exemption: The amount a person can give over a lifetime, beyond yearly gifts, before gift tax is due: $15 million each in 2026.
Life settlement: Selling a policy you no longer need to an investor for more than its surrender value.
Mortgage insurance (PMI): Insurance that protects the lender on a loan with a small down payment; it can be removed as equity grows.
Principal: The part of the balance that is the original loan amount still owed, not interest.
Qualified charitable distribution (QCD): A gift sent straight from an IRA to a charity at 70½ or older, left out of taxable income.
Recast: A lender re-figures the payment after a large principal payment, keeping the same rate and end date.
Refinance: Replacing the loan with a new one, ideally at a lower rate and without taking cash out.
Required minimum distribution (RMD): The amount that must come out of most retirement accounts each year starting at 73.
Royalty: A payment for the use of something you own, such as minerals or timber.
SCRA: The Servicemembers Civil Relief Act, which caps interest at 6% on debts taken before active duty.
Securities-backed line of credit: A loan against an investment account; the lender can sell holdings if values fall.
Seller financing: A sale where the seller lends the buyer part of the price and is paid over time.
Sequence: Strategies stacked in an order that repeats.
Servicer: The company that collects payments and runs escrow; it may not be the lender.
Step-up in basis: Inherited property generally takes its value at the date of death as its new basis.
Structured settlement: Payments over time from a legal settlement; selling them requires court approval.
Surrender value: What a policy or annuity pays if ended now: account value minus any surrender charge.
Velocity banking: Using a line of credit to make chunk payments on a mortgage; measured here against simply paying the same surplus straight to principal.
Withholding: Tax taken from each paycheck. Too much means a refund later; the right amount means more cash each month.