Financial Terminology, Part 3

This is the third hub I have written about the meaning of some financial terms that we don't understand. Many times we sign legal documents without knowing the meaning of financial terms that are in the fine print, or anywhere else in the document, as a matter of fact. Without knowing what these fancy legal terms mean, we could be agreeing to something we know nothing about! I have tried to explain some of the more confusing ones to my readers so that we won't be signing our life away when we purchase a new home or vehicle. There are only five on a page and this is for a reason. We tend to remember better when we read things in smaller bite size pieces, then maybe we will better digest the meanings of each term.

1.) Earnest money: A deposit offered by a home buyer to ensure that the seller will not sell the house to someone else during the negotiations.

2.) Private mortgage insurance (PMI): Insurance sold by a company that typically insures the first 20 percent of a mortgage loan in case of default.

3.) Open-ended credit: Credit extended in advance of any transaction, so that the borrower does not need to reapply each time credit is desired. Amounts owed are repaid in one payment or in a series of equal or unequal payments, usually monthly.

4.) Tiered interest rate: A combination of a base rate and a higher rate; where the higher rate is applied to larger account balances.

5.) Diversification: The process of reducing risk by spreading investment assets among several investments.

I hope that you will take time to read the other two hubs that I've written explaining financial terms that can be confusing. I've included the links to them below. Without proper knowledge concerning financial terms we could be signing legal documents without really knowing what they mean.