Jargon and Acronyms….They’re everywhere…LOL!
The use of jargon and acronyms has become pervasive in the English language. Whether used by government (e.g. CIA, NATO, etc.), lawyers (e.g. adjudication, brief, etc.), IT specialists (e.g. SEO, SPAM, etc.) or the younger generation (e.g. TTYL, sick, etc.), today our language has become laden with these professionally, generationally and industry specific dialects. With the advent of computerization and the internet specifically, the use of jargon and acronyms has increasingly become more widespread in our culture. So customary, that this lingo has almost become a language of its own – a foreign language for many of us, oftentimes requiring translation.
The use of acronyms and jargon in the financial services industry is not new. Our industry has always had its own language. Whether you are watching your favorite nightly financial news show or conversing with financial professionals, I’m sure you sometimes feel inundated and somewhat intimidated by our industry’s commonplace use of idioms.
Webster’s Dictionary defines jargon as the language, especially the vocabulary, peculiar to a particular trade, profession or group and acronym as a word formed from the initial letters or groups of letters of the words in the name or phrase. In a nutshell, the use, most aptly today, the overuse of this language can be quite confusing and leaves many of us exclaiming, “WHAT???”
Although the list of our industry’s acronyms and jargon is fairly exhaustive, I thought I’d dedicate the balance of this article to a few of the most commonly used acronyms in our industry which tend to be the least understood by our customers. I hope to shed some light and clear up any possible confusion concerning the following popularly used financial acronyms: APR, ARM, AGI, and PMI.
APR – Annual Percentage Rate – This is the annual rate of return made by investing or charged by borrowing, expressed in a single percentage number. It represents the actual return on money invested or cost of funds when borrowed. For example, if a credit card company charges 2% a month on your outstanding balance, the APR is 24% (2% x 12 months). This number differs from APY (Annual Percentage Yield) which takes compound interest into account.
ARM – Adjustable Rate Mortgage – This differs from a fixed rate mortgage in that the interest you pay on the loan balance varies over the life of the loan based on a financial benchmark or index and an additional spread called a margin. The initial rate is fixed for a period of time. Then periodically, the interest rate is reset. For example, if you had a 2/28 ARM, this is a 30 year mortgage, with a fixed rate for the first two years and a floating rate for the remaining 28 years.
AGI – Adjusted Gross Income – This is the “net income” figure used to determine your taxable income. Your AGI is your gross income minus all allowable deductions (e.g. unreimbursed business expenses, medical expenses, contributions to a deductible retirement plan, etc.). This net number is computed on page 1 of your federal tax return.
PMI – Private Mortgage Insurance – Many people confuse this insurance with homeowner’s insurance. This mortgage specific policy is provided by a private mortgage insurer to protect lenders against loss if the borrower defaults on the loan. Most lenders today require PMI on loans with a loan-to-value (LTV….yet another acronym!) that is more than 80% (a down payment less than 20%). Although this allows the borrower to put less down, it typically requires an additional premium payment over and above the mortgage payment and possibly an additional monthly fee.
Although the use of jargon and acronyms is most likely not going away any time soon, we must be cautious not overuse them, especially when we are communicating with people outside of our trade or industry. In our goal to provide excellent service to our customers, the management and staff of Intracoastal Bank make it a priority to always communicate with our customers clearly and concisely. It doesn’t cost a thing ….just a little time and patience. B4N! (Bye for Now)