GLOSSARY

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Need

What the cost of a higher education is minus the expected family contributions and outside resources, like scholarships and grants.

Need-based pricing

A method of pricing a home based on what the owner wants to get for the property without regard to what other homes are selling for. This method is not commonly advisable.

Needs approach

The needs approach is a type of analysis that estimates how much life insurance an individual requires. The analysis estimates the expenses that will have to be covered if the insured were to pass, including funeral costs, legal fees, mortgage expenses, debt payments, future living expenses, etc.

Needs-based pricing

Needs-based pricing is one method of establishing an asking price for an object that's to be sold. In real estate, for example, a seller might price the home to recover the initial purchase price, plus the cost of any renovations. Unfortunately, if this asking price is higher than what the market will bear, the home will not sell.

Negative amortization

This happens when the interest due on the loan is more than the monthly payments. The balance unpaid interest is added to the balance of the loan. In negative amortization the loan of the borrower increases and thus he ends up owing more than the original loan.

Negative amortization limit

Negative amortization limit is a cap on the amount of accrued interest that can be added to the principal balance of a loan that allows negative amortization. Negative amortization occurs when a loan's minimum payments are less than that period's accrued interest. The shortfall is added into the loan balance at the end of each period. The limit is usually defined as a percentage of the opening loan balance.

Negative carry

Negative carry occurs when the cost to finance an investment purchase exceeds the yield produced by the investment. For example, if an investor borrows money at 8 percent interest, and uses those funds to purchase a bond that pays 5 percent interest, the investor would be losing 3 percent interest on the investment.

Negative equity

Negative equity occurs when the value of an asset securing a loan dips below the loan balance. For example, an individual could take out a mortgage loan to finance 100 percent of a home purchase. If the home's value subsequently drops, due to recession, for example, the homeowner would have negative equity. Selling the home would require the homeowner to pay out of pocket to cover the difference between the sales price and the loan balance.

Negative equity financing

A situation when a new car buyer owes more on their trade in than the car is worth.

Negative points

Negative points are used by a lender to rebate either a mortgage broker, or a mortgage borrower, for a mortgage that carries a higher-than-par interest rate. This rebate might be paid as a fee to the mortgage broker, or can be paid to the borrower to offset closing costs. No-cost mortgage loans use negative points; the borrower essentially trades a higher interest rate for lower upfront costs.

Negative yield curve

A negative yield curve describes an economic environment characterized by long-term yields being lower than short-term yields. A simple example of this is when a five-year CD pays 3 percent, and a six-month CD pays 4 percent. Negative yield curves often precede economic recession. The negative yield curve is also called an inverted yield curve.

Negative-equity financing

Negative-equity financing is a loan that's funded for an amount that exceeds the value of the collateral asset. This can happen with car loans; a buyer might want to trade in a vehicle that's depreciated below the outstanding loan balance. The new auto loan would have to cover the cost of the new car, plus the difference between the old loan balance and the old vehicle's trade-in value.

Negatively amortizing loan

A negotiable instrument is a written document that states a promise to pay the holder. Checks, acceptances, and bills of exchange are negotiable instruments.

Negotiable instrument