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Glossary

Mortgage, insurance and investment terms, defined in principle. Amounts and numeric rules should be checked with your lender or insurer.

Amortization: The total length of time planned to repay a mortgage in full. It is longer than the term: the contract is renegotiated several times before the amortization ends.
Compound interest: Interest calculated not only on the initial principal but also on interest already accrued. Over time, the gap with simple interest widens.
Credit score: A score produced by credit bureaus from payment and debt history. Lenders use it, among other factors, to decide whether to lend and on what terms.
Deductible: The part of a loss you pay before the insurer pays. A higher deductible generally lowers the premium but raises what you pay out of pocket on a claim.
Down payment: The share of the purchase price paid in cash, so not borrowed. The larger it is, the smaller the loan; its proportion also decides whether mortgage default insurance is required.
Fixed rate: An interest rate that does not change during the term. The payment stays predictable, but leaving the contract before maturity may trigger a penalty.
GIC (guaranteed investment certificate): A fixed-maturity investment offered by a financial institution that promises the principal and a return known in advance. The money is often locked in until maturity; protection depends on the issuer.
Home equity: The difference between a property's value and the balance of the loans secured against it. It grows as principal is repaid, and with changes in the property's value.
Insurance premium: The amount paid to the insurer, periodically or at once, in exchange for the protection set out in the contract. It depends on the insured risk, the coverage chosen and the deductible.
Land transfer tax: The municipal tax paid when buying a property, often called the “welcome tax”. It is calculated in brackets on the price or the assessed value, whichever is higher.
Management expense ratio (MER): The yearly share of a fund's assets withheld to cover its costs. It is taken out of the return without appearing on a statement, hence its cumulative effect over long periods.
Minimum payment: The smallest amount to pay each month on a credit card to avoid default. Sticking to it lengthens repayment and increases total interest.
Mortgage default insurance: Insurance that protects the lender, not the borrower, if payments stop. It is generally required when the down payment is small, and its premium is most often added to the loan.
Prepayment penalty: The charge for repaying a mortgage, in whole or in part, beyond what the contract allows before maturity. The calculation method is set out in the contract and varies by lender.
Prime rate: The benchmark rate a financial institution applies to its lowest-risk clients. It is the base for many variable-rate loans and lines of credit.
Refinancing: Replacing an existing mortgage with a new one, often to change the rate, lengthen the amortization or borrow against built-up equity. Fees and a penalty may apply.
Renewal: Continuing a mortgage at the end of its term, with the same lender or another. It is the moment to compare offers rather than accept the first proposal.
RRSP: The registered retirement savings plan: contributions reduce taxable income and growth is sheltered from tax, but withdrawals are taxed. Contribution room is limited.
Term: The period during which the mortgage contract's conditions (rate, prepayment options) apply. At maturity, you renew or switch lenders.
TFSA: The tax-free savings account: investment income earned in it is not taxed, and withdrawals are not taxable. Contribution room is limited and set by the tax authorities.
Variable rate: A rate tied to the lender's prime rate, which moves during the term. Depending on the contract, either the payment or the interest share of the payment changes.