Amortization period |
The actual number of years it will take
to repay a mortgage in full. This period is usually longer
than the loan’s term. For example, a mortgage may
have a 5-year term and a 25-year amortization period.
|
Annual Percentage
Rate (APR) |
The cost of credit expressed as a yearly
rate; includes the annual interest rate and any additional
costs (e.g. annual fees).
|
Annual return |
The fund return for any 12-month period,
including changes in unit value and the reinvestment of
distributions, but not taking into account sales, redemption,
distribution or other optional charges or income taxes payable
by any unit holder that would reduce returns.
|
Amortization |
The number of years it takes to pay off the
total amount of a mortgage or loan.
|
Appraised value |
An estimate of the market value of a property
that is pledged as security for a mortgage. This value may
be more or less than the purchase price of the property.
|
Appreciation |
The increase in a property’s value over
time.
|
Asset |
Anything owned by, or owed to, an individual
or business which has commercial or exchange value (e.g. cash,
property, etc.).
|
Asset mix |
The weighting of assets in an investment portfolio
among different asset classes (e.g. shares, bonds, property,
cash, overseas investments).
|
Bank draft |
A guaranteed form of payment which is issued
in amounts over $5,000.
|
Blended rate mortgage
|
A mortgage that combines the amount you owe
under an existing mortgage with additional money that you
borrow. The interest rate for the new amount is a blend of
the interest rate of the old mortgage and the interest rate
for the additional amount to be borrowed.
|
Bond |
A debt security issued by a government or company
that provides regular interest payments at specified rates
while the bond is held. The face value is paid when it matures.
Short-term bonds mature in less than five years; medium-term
bonds mature in six to ten years; and long-term bonds mature
in eleven years or more.
|
Canada Savings Bonds
(CSB) |
A bond issued each year by the federal government.
These bonds can be cashed at any time for their full face
value.
|
Central 1 |
Central 1 Credit Union is the central financial
facility, payments settlement centre and trade association
for Credit Unions in British Columbia and Ontario. Owned by
member Credit Unions, it exists to serve their needs through
provision of essential and discretionary services. Central
1 is financially strong, efficiently managed and maintains
an excellent credit rating. Services are delivered through
staff and management dedicated to fostering the strength and
growth of member Credit Unions.
|
Certified cheque |
Certified cheque is a form of cheque for which
the issuing financial institution verifies that sufficient
funds exist in the account to cover the amount. Those funds
are then set aside in the financial institution’s internal
account until the cheque is cashed or returned by the payee.
Thus, a certified cheque cannot "bounce", and, in
this manner, its liquidity is similar to cash.
|
Canada Mortgage and
Housing Corporation (CMHC) |
A federal Crown corporation that administers
the National Housing Act. It provides mortgage default insurance
for high ratio mortgages. It allows people to qualify for
mortgages with less than 25% down payment or equity.
|
Closed mortgages |
A mortgage that usually may not be prepaid or
renewed early without an interest penalty, which could be
the greater of three months interest or the interest rate
differential.
|
Closing date |
The date that the purchase of a property becomes
final and the new owner takes possession.
|
Closing costs |
Expenses in addition to the price of buying
the home.
|
Conventional mortgage |
A first mortgage up to 80 % of the property’s
appraised value or purchase price, whichever is lower.
|
Co-borrower |
The secondary borrower on a loan.
|
Compound interest
|
Interest payment calculated on the accumulated
unpaid interest as well as on the original principal.
|
Consumer finance company
|
A company providing financial services such
as instalment and home equity loans that are regulated under
provincial laws.
|
Collateral |
A pledge of property or other assets against
a loan, which is liquidated in the event that payments are
not made as required.
|
Compounding |
When an asset generates earnings that are then
reinvested and generate their own earnings.
|
Counter offer |
One party’s written response to the other
party’s offer during negotiations between the buyer
and the seller.
|
Credit |
“Credit” is the funds on deposit
in a bank account. The opposite of a credit is a debit.
However, ‘credit’ also means money that is borrowed
from a financial lender, such as the Credit Union. A credit
card, for example, is a card that allows access to funds which
then have to be repaid.
|
Credit bureau |
An organization that provides financial institutions
with credit information concerning existing or potential customers
who are looking to obtain credit services.
|
Credit card |
A revolving source of credit with a pre-established
limit. Interest is charged on a credit card if there is an
outstanding balance.
|
Credit limit |
The maximum balance that can be charged on a
credit card or borrowed from a line of credit.
|
Credit report |
A report of any card or loan that is currently
held, was held in the past, or for which application has been
made. It includes the credit limits of those cards or loans
and the payment history. It is used by lenders as part of
the decision-making process when evaluating whether to extend
new or additional credit to a borrower.
|
Credit Union |
A financial co-operative comprised of people
who share a common bond, such as employees of a company or
a specific ethnic origin. Credit Unions offer their members
specific benefits, such as community sponsorships.
|
Debit |
Funds which have been deducted from an account.
The opposite of a debit is a credit.
|
Debt consolidation |
A method available to consumers to better manage
the amount of debt they carry. The consumer borrows from one
lender an amount equal to the debts he/she owes to several
lenders, and uses that money to pay off those debts. Benefits
of such a loan include combining monthly payments into a single
payment and possibly lowering the amount of the overall monthly
payments.
|
Deed |
A legal document that transfers ownership of
a property to the buyer.
|
Deposit Insurance
Corporation of Ontario (DICO) |
An Ontario Provincial Agency established under
the Credit Unions and Caisses Populaires Act, 1994. DICO’s
role is to protect depositors of Ontario Credit Unions and
Caisses Populaires from loss of their deposits. Deposit insurance
is part of a comprehensive depositor protection program for
all Ontario Credit Unions which is backed by provincial legislation.
|
Direct deposit |
Funds are electronically transferred to an account
by a financial institution or payroll service, generally by
an employer or government department.
|
Diversification |
An investment technique intended to minimize
risk by utilizing a wide variety of investments within a portfolio.
In a diversified portfolio, a decline in the value of one
investment, for example, should be offset by the strength
of other investments.
|
Down payment |
The initial payment on a credit purchase made
which is deducted from the principal balance that is owed.
|
Draft |
A guaranteed form of payment which is issued
in amounts over $5,000.
|
Earned income |
Earned income is generally an individual's salary
or wages from employment. It also includes some taxable benefits.
Earned income also includes business income if the individual
is self-employed. Earned income is used as the basis for calculating
RRSP maximum contribution limits.
|
EFT (electronic funds
transfer) |
Funds which are electronically credited to an
account or electronically debited from an account on an ongoing
basis (e.g. a pre-authorized monthly bill payment, or a monthly
loan or mortgage payment). A wire transfer is a form of EFT.
|
Easement |
A legal right to use (right of way) or cross
another person’s land for limited purposes (e.g. a utility
company’s right to run wires or lay pipes across a property).
|
Equity |
The net worth of a company. This represents
the ownership interest of the shareholders (common and preferred)
of a company. For this reason, shares or stocks are often
known as equities.
|
Exchange Network |
THE EXCHANGE® ATM network enables participating
financial institutions to offer their cardholders convenient
access to a very large, proprietary ATM network at an affordable
cost. THE EXCHANGE® Network offers the only inter-institutional,
full-function ATM network in Canada. There are no service
charges when withdrawing or depositing funds through The Exchange
Network of ATMs.
|
First mortgage |
A debt registered against a property that has
first call on that property.
|
Growth funds |
Mutual funds that seek long-term capital growth.
This type of fund invests primarily in equity securities.
|
Gross Debt Service
Ratio (GDS) |
It is one of the mathematical calculations used
by lenders to determine a borrower’s capacity to repay
a mortgage. It takes into account the mortgage payments, property
taxes, approximate heating costs, and 50% of any maintenance
fees, and this sum is then divided by the gross income of
the applicants. Ratios up to 32% are acceptable.
|
Guarantor |
A person with an established credit rating and
sufficient earnings who guarantees to repay the loan for the
borrower if the original borrower defaults on payment.
|
Guaranteed Investment
Certificate (GIC) |
An investment that gives you a guaranteed rate
of return over a fixed period of time, usually between 30
days and 5 years. GICs are available from Credit Unions, banks,
trust companies, and other financial institutions.
|
Home Equity Line of
Credit |
A revolving loan that allows you to borrow
amounts up to your credit limit as you need them. As you pay
back the money you’ve borrowed, your available credit
is restored and you can borrow from the line of credit again.
You pay interest on the amount outstanding.
|
Income funds |
Mutual funds that seek regular income. This
type of fund invests primarily in government, corporate and
other types of bonds, debt securities, and other income producing
securities and in certain circumstances can also hold common
and preferred shares.
|
Index |
A statistical measure of a stock market based
on the performance of a sample of securities in that market.
For example, the S&P/TSX Composite Index reflects the
performance of the most actively traded stocks on the Toronto
Stock Exchange.
|
Index funds |
Mutual funds that aim to track the performance
of a specific stock or bond index. This process is also referred
to as indexing and passive management.
|
Instalment loan |
A type of a consumer loan repaid in regular
instalments over a specified period. It is often secured for
the purpose of consolidating debts, paying taxes or managing
a single large expense.
|
Instalment purchase
|
A loan specifically to purchase "big ticket"
items, such as car or major appliances. A down payment is
usually required and a contract is signed for a balance due,
plus interest and service charges. The debt is repaid in equal
instalments over a specified period of time.
|
Interac® Direct
Payment |
Instead of paying with cash or a credit card,
Interac Direct Payment allows you to pay for your purchase
with a debit card, such as your Member Card. The amount of
the purchase is electronically debited, or withdrawn, from
your bank account.
|
Interac system |
Canada's ATM and electronic debit system.
|
Interest |
The cost of a loan or the compensation paid
for the use of money. For example, interest is paid for deposits
in savings accounts,, and interest is charged for money borrowed
as a loan.
|
Late fee |
Fee usually charged for a late payment (an account
is considered late if a payment has not been paid by the due
date) in provinces where allowed by law.
|
Lien |
Any legal claim against a property or item,
that is filed to ensure the repayment of a debt.
|
Line of credit |
A revolving source of credit with a pre-established
limit. You access the funds only as you need them, and any
amount that you pay back becomes accessible to you again.
Unlike a personal loan, a line of credit permits you to write
cheques and make ATM withdrawals, and requires you to pay
interest only on the funds that you actually use.
|
Loads |
Loads are sales fees (or commissions) that are
charged when you buy a mutual fund.
|
Maturity date |
The date on which final payment is due.
|
Member Card |
Enables you to directly access your account
when paying for purchases. Instead of paying in cash or with
a credit card, a debit card allows the specified amount of
the purchase to be electronically debited, or withdrawn, from
an account. It also allows access to your account through
an ATM.
|
Mutual fund |
Pooling your money with that of other investors.
An investment professional called a portfolio advisor takes
that money and invests it for all the investors in a variety
of different securities as determined by the investment objectives
of the mutual fund. This gives you the benefit of diversification
that is, being invested in many different investments at once.
|
Net asset value |
The value of all the holdings of a mutual fund,
less the fund's liabilities.
|
NSF (non-sufficient
funds) |
If there are insufficient funds in your account
to cover a cheque that you have written or a pre-authorized
payment that you have already arranged, a service fee for
non-sufficient funds is charged.
|
Online bill payment |
The electronic payment of a bill via the Internet.
The specified amount of the bill is electronically debited
from your account. Once the bill has been paid online it may
take up to three business days to register with the company
that is receiving the payment.
|
Overdraft protection |
A short-term source of credit which allows you
to overdraw on your account up to a pre-established limit.
Overdraft protection is attached to your Credit Union Chequing
Account. Members with payroll direct deposit are automatically
approved for overdraft protection.
|
Payroll deduction |
A fixed amount is deducted per pay period and
credited to the account of choice. For example, loan payments,
RRSP contributions, mutual funds and regular savings.
|
Personal loan |
A lump sum that you borrow from a financial
institution for a specified period of time. To repay the loan,
you pay interest on the entire lump sum, and make payments
on a scheduled basis.
|
PIN (personal identification
number) |
A secret code that you use to access your account
at an ATM, point of sale (POS) terminal, and banking by telephone.
|
Personal line of credit |
A revolving source of credit with a pre-established
limit. You access the funds only as you need them, and any
amount that you pay back becomes accessible to you again.
Unlike a personal loan, an LOC permits you to write cheques
and make ATM withdrawals, and requires you to pay interest
only on the funds that you actually use.
|
Prepayment privilege |
An agreement allowing you to pay part or all
of a loan in advance of a contracted due date.
|
Principal |
The amount of a loan or the unpaid amount of
a purchase before finance charges or other borrowing costs
associated with the loan are either added or deducted; also
known as amount financed.
|
Point of sale (POS) |
The terminal at which a debit card (Member Card)
is used to make a direct payment transaction.
|
Pre-authorized payment |
A system where funds are electronically debited
from your account on a specified date by a financial institution
(e.g. bill, mortgage or personal loan payments) or an insurance
or utility company.
|
Prospectus |
A legal document that must be filed with securities
regulators in order to distribute securities, including mutual
funds. Mutual fund dealers are required by law to distribute
this document to investors before the purchase of any units.
It contains all key information, such as investment objectives
and strategies, risk factors and financial highlights.
|
Qualified investments |
Qualified investments is the term used for
investments that can be held in an RRSP. These investments
generally include:
- Canadian dollar savings accounts, guaranteed investment
certificates, term deposits
- shares of Canadian and foreign companies listed on a
prescribed stock exchange
- shares of some over-the-counter U.S. and Canadian companies
- shares of some small businesses
- certain types of bonds and money-market investments
such as treasury bills, Canada Savings Bonds, Government
of Canada bonds, provincial government bonds, Crown Corporation
bonds, bonds issued by Canadian corporations listed on
a prescribed stock exchange, and certain strip bonds
- certain types of mortgages, including your own
- certain covered call options, warrants and rights
- certain mutual funds
|
Redeemable |
The option to redeem (cash-in) part or all of
an investment before it matures. Depending on the investment,
early redemption may entail an interest rate penalty.
|
Refinance |
The rescheduling of payments on an instalment
loan, generally for smaller payments extending over a longer
period of time.
|
Registered Retirement
Income Fund (RRIF) |
An account designed to provide retirees with
a source of income after they have retired. Usually a RRIF
is comprised of the funds that roll over from an RRSP, as
an RRSP cannot be kept after the age of 71. The capital and
interest in a RRIF accumulates tax-free, but is subject to
tax upon withdrawal. Persons with a RRIF can withdraw any
amount of money from the fund at any time, but any amount
over the minimum will be subject to various degrees of withholding
tax. The funds in a RRIF can only be sourced from another
RRIF, an RRSP or another pension plan.
|
Registered Education
Savings Plan (RESP) |
A savings account designed to help parents save
for their children’s post-secondary education. It has
the advantage of accumulating tax-free interest as well as
allowing for parents to apply for the Canada Education Savings
Grant. Contributors as well as beneficiaries must be Canadian
citizens and have a SIN. Anyone can open an individual RESP
for a child, but family RESPs are limited to relatives through
blood or adoption only. Different funds may have other rules.
|
Risk |
Risk measures the possibility that your investment
may lose or gain value as compared to the expected rate of
return. Risk is different from uncertainty, which is not measurable.
|
Registered Retirement
Savings Plan (RRSP) |
A retirement savings plan registered with the
federal government. Each year, a certain amount is contributed
and deducted from gross annual income. As a result, less income
tax is paid while setting money aside for retirement.
|
Savings funds |
Mutual funds that seek to preserve capital.
This type of fund invests primarily in short-term securities
with an average term to maturity of one year or less, or in
the case of money market funds, 90 days or less.
|
Secured loan |
A loan is granted against security (or collateral)
owned by the borrower to decrease the risk assumed by the
lender. Upon default (failure to repay the loan), the lender
is entitled to take possession of the collateral as payment
for the money owed.
|
Simple interest |
Interest calculated on the principal balance
outstanding as long as any portion remains unpaid.
|
Spousal RRSP |
Contributions to an RRSP for a spouse that is
claimed as an income tax deduction by the contributor.
|
Stop payment |
Payment of a cheque or other pre-authorized
payment is not completed, as long as the funds have not yet
been disbursed. For example, stop payment on a post-dated
cheque if the product or service for which that cheque was
initially written is no longer required.
|
Systematic withdrawal
plan |
Plans offered by mutual fund companies that
allow unit holders to receive payment from their investment
at regular intervals.
|
Tax Free Savings Account
(TFSA) |
A federally registered government savings account
that is available to Canadians aged 18 and older to save up
to $5,000 a year in a tax free plan. Interest earned on investments
in a TFSA is not taxed, even when withdrawn.
|
Term |
The period of time during which a financial
contract – such as a GIC or a loan – is in force.
|
Tiered interest rate |
A pre-set scale of interest which is based on
the premise that higher sums of money earn higher rates of
interest.
|
Title |
Legal evidence of ownership of property.
|
Total Debt Service
Ratio (TDS) |
One of the other mathematical calculations used
by lenders to determine a borrower’s capacity to repay
a mortgage. It takes into account the mortgage payments, property
taxes, approximate heating costs, and 50% of any maintenance
fees, and any other monthly obligations (i.e. personal loans,
car payments, lines of credit, credit card debts, other mortgages,
etc.), and this sum is then divided by the gross income of
the applicants. Ratios up to 40 % are acceptable.
|
Unsecured loan |
A loan based on the borrower’s past credit
history and the lender’s assessment of the borrower’s
intention and ability to repay the money borrowed. The lender
has no security or collateral of the borrower’s to fall
back on should the loan not be repaid as promised.
|
Variable interest
rate |
An interest rate that can increase or decrease
over the life of the loan, based on fluctuating rates set
by the financial institution, such as prime rate.
|
Volatility |
A measure of the amount of change in the daily
price of a security over a specified period of time. It is
usually given as the standard deviation of the daily price
changes of that security on an annual basis.
|
Wire transfer |
An electronic transmission of money from one
place to another. For example, you might request that your
financial institution transfer money from your account in
Vancouver to the account of a relative in Quebec City. To
do this, you would provide the relative’s name and account
number, as well as the address of the financial institution
in Quebec City. Your financial institution would then "wire"
the funds, which would usually arrive within a couple of days.
|
