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Finance glossary

Loan terms can be confusing, but we’re here to help. This glossary is designed to define frequently used finance terms to help you understand your loan options better.

A — C

Accrue

For someone to gather increasing amounts of money and benefits over time

Additional Payments

To increase your regular payments or give an extra lump sum towards your mortgage or loan so that it’ll be paid off faster

Amortization

To gradually finish a mortgage or debt through periodic payments towards the creditor

Annual Percentage Rate (APR)

Similar to an interest rate in which it represents other charges you pay to receive the loan; it includes interest, points, and fees

Appraisal Value

The value of property at any given time

Asset

A valuable item, usually a vehicle or a house

Bankruptcy

After going through the proper legal procedures, it is a status taken up by someone who has too much debt

Bond

An official certificate in which a portion of debt that is paid by the government or a company to an individual, usually comes with a fixed interest rate

Canada Mortgage and Housing Corporation (CMHC)

An organization in Canada that is responsible for housing needs in Canada by making housing more affordable

Closed Mortgage

A type of mortgage that cannot be changed; this includes changes towards the prepayment, renegotiation, and refinancing; there may be penalties if any of the terms are broken

Closing Costs

The extra costs that the buyer must meet to complete the transaction of the property

Co-Applicant

Someone who is applying alongside another applicant and is as equally responsible for payments towards the loan, mortgage, or credit card

Co-Borrower

See Co-Applicant

Collateral

An asset that acts as a pledge and can be seized if the borrower ever defaults on the loan agreement

Consolidation Loan

A loan used to pay back credit cards and other existing loans so that only one source needs to be paid in the end

Co-Signer

Someone with a decent credit score who signs an agreement for another who has a weaker credit score; responsibility to repay falls on the co-signer if the original borrower cannot fulfil the deal

Credit Score

A scoring system that ranges from 300 to 850 and that determines how well you are in paying back the bank; the higher the number, the better your score is

Credit

The amount of money you owe back to a bank; the less you owe, the more financial institutions will trust you with loans

Curtailment

Much like a down payment, an extra payment to reduce the overall loan amount and the time it would take to pay it back

D — H

Debt to Income Ratio

The amount of debt you have measured against your income; the further apart they are, the better

Deed of Trust

An alternative to a mortgage in which a third member, a trustee, possesses the title to the property until the borrower fully repays the lender

Default

To fail your end of the agreement on a loan

Down Payment

The amount of money you must give towards what you are purchasing, outside of the loan

Equity

How much your asset is worth minus how much you paid off equals the equity

Escrow

A mediator for the lender and the borrower, making sure all requirements and agreements are fulfilled

Financing

Loans, credit, and other payment arrangements made so that a person can make large payments over a period of time

First Mortgage

The mortgage with first priority; if the property ever gets sold, the first mortgage must be met before another

Fixed Rate

Regardless of the circumstances, the interest rate on the loan will not change

Foreclosure

The legal action of reclaiming property because the loan was not fulfilled

Grace Period

A certain amount of time past a due date where you will not be given extra penalties if you fail to repay by the predetermined date

Home Equity Line of Credit (HELOC)

When your home equity acts like a credit card and you can use it to make large purchases over time; your home is the collateral

Home Equity Loan

A lump sum of money taken from your home equity to pay for large one-time purchases such as renovations or big events

I — M

Income

The amount of money you get from your employment and other sources

Inflation

The price of goods and services increasing over time, resulting in devaluation of money

Installment Loan

A loan that people normally think of; a borrower is given a certain amount of money and has to pay according to schedule

Interest

An extra amount of money that you are required to pay on top of the portion of the loan that is due

Interest Rate

A percentage of the overall amount that represents the extra that you are required to pay

Lien

An agreement placed on the housing property that you can put on your property that allows you access larger borrowing amounts

Line of Credit

A type of loan that let prescribes a limit and you can only borrow up to that much; a typical example of line of credit is a credit card

Liquidation

The process where assets are converted to cash and liabilities are discharged

Loan to Value (LTV) Ratio

A percentage that represents the loan value measured against the value of the asset; it is calculated by dividing the the secured loan amount by the collateral’s market value

Maturity

A predetermined date that indicates when a loan, bond, or other financial instruments need to be renewed or repaid

Mortgage

A word referring to a loan put towards a real estate or property

Mortgage Fees

Part of the closing costs and includes fees such as appraisal, home inspection, loan origination, application, and other fees

Mortgage Insurance

A type of insurance a buyer needs when their down payment is less than 20% of the house’s purchase price

Mortgage Insurance Premium

The amount equal to the house’s LTV ratio that the lender has to pay for

Mortgage Payouts

The amount of money, including interest, that you still need to pay to fully satisfy the loan

Mortgage Refinance

To renegotiate your current mortgage to consolidate your debt or utilise the equity

Mortgage Renewal

The renewal of the mortgage term until it is paid back in full

N — R

Open Mortgage

The conditions are more flexible and do not incur any penalties if there are challenges in the repayment process

Original Mortgage Amount

The amount of money from the loan that was given to the nonprofit

Outstanding Balance

The money that is still owed back; it includes interest and isn’t just the original amount

Penalties

The consequence of breaking your mortgage contract and come in the form of fines

Portable Mortgage

Mortgages that can be applied to a new piece of property without penalties as long as they have the same lender

Pre-approval

An official statement given to the borrower by the lender that says you are eligible for a loan of a certain amount

Prime

High quality elements of loans, rates, and other features of the lending market

Principal

The remaining amount of debt on a loan, not including the interest

Reconveyance

The act of transferring the title to the borrower once all promises have been fulfilled and is done by the trustee

Refinance

To establish a new loan, usually with more favourable terms such as lower interest rates

Residual Value

The value of the asset at the end of its lease term or its usefulness

Reverse Mortgage

A type of loan (with a limit) where senior citizens can borrow against the value of their house

S — Z

Secure Line of Credit

A line of credit with a collateral attached to it, therefore having lower interest rates than an unsecured line of credit

Secure Loan

A loan that requires collateral; in case the loan is not paid back, the lender can seize the asset; Home Equity loans are examples of secure loans

Strata Fees

Monthly fees due to the strata for maintenance and development of the property

Statement

The general term for official documents that state transactions between a client and a service

Term

How long the loan agreement will be; the end date indicates when the loan has to be completely repaid

Trustee

The third member in a bond agreement who temporarily holds the title to the asset until the loan has been fulfilled

Unsecured Line of Credit

A line of credit with higher interest rates that is riskier for lenders because there isn’t a collateral that they can seize if the borrower ever defaults

Unsecured Loan

A loan that does not require collateral and may have higher interest rates; a common example is student loans

Variable Rate

When the interest rate of the purchase may fluctuate; the opposite of fixed rate; usually applicable to mortgages

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