A Girl’s Guide to Financial Lingo

Cece Mitchell, manager of Zions Bank’s Women’s Financial Group shares six common financial terms you should be familiar with.

You don’t necessarily need to become fluent, but you should at least know a few common phrases to help you be a savvy consumer.

1. Annual Percentage Rate, also known as APY: This term refers to the interest rate or yield on a loan over an entire year, instead of just the monthly rate. This rate is usually applied to a loan, credit card or mortgage. This is the most common way you’ll see rates expressed in advertising.

2. Net Worth: This is a term that refers to an individual’s economic position. In other words, it’s your total assets minus your liabilities. Let’s think of this in terms of clothing: take all of the clothes in your closet and subtract all of the “borrowed” clothes from the ones that are actually yours — those left represent your “net worth.”

3. Inflation: Here’s a word we hear almost daily in the headlines. Inflation happens when there’s a rise in prices of goods and services that causes a decline in the actual value of money, or in other words a loss of “purchasing power.” So, if we think of it in terms of that pair of pumps that your $100 could have bought last month…If you become a victim of inflation, that same $100 might only buy you one of the two shoes.

4. Debt-to-Income Ratio: This refers to the percentage of a person’s income that goes towards paying debt. So if you spend $200 of your $1,000 paycheck to pay off your credit card, you would have a debt-to-income ratio of 20%.

5. Loan To Value (LTV) Ratio: This ratio is used a lot in mortgages or home equity loans. It’s the dollar amount of a loan as a percentage of the total value of a property. For example, if someone wants to take out a $25,000 home equity loan against a $100,000 home, the loan-to-value ratio is 25%. Lenders look at this ratio when making the decision to grant someone a loan. The higher the ratio, the qualifications for receiving a loan (such as credit score or interest rate) become more conservative.

6. Fixed vs. variable rate loan/ARM (Adjustable Rate Mortgage): We heard a lot about ARM loans in relation to news about the housing crisis. This kind of mortgage loan has an interest rate that can adjust from one period or another. The monthly payments can change over time as interest rates change.

The Zions Bank Women’s Financial Group provides women of all ages and financial situations with the information they need to achieve their financial goals. Built upon Zions Bank’s 135-year foundation of strength and stability, the Women’s Financial Group can help you meet your financial goals. Whether you’re a stay-at-home mom or the owner of your own business, you can depend on our friendly team of banking experts to guide you through the growing sea of financial choices.