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A-B-C-D-E-F-G-H-I-JK-L-M-N-O-P-Q-R-S-T-U-V-W-XYZ

Specialized Glossaries:


Mortgage / Real Estate
Life Insurance
Estate Planning

Retirement / RSP / RIF
Mutual Funds
Credit / Financing

Abbreviations / Acronyms

Special Glossary of Credit and Financing Terms

The purpose of a glossary is to provide brief definitions, while not necessarily legally accurate, are tailored to suit the meaning(s) given to the special terms you may come across in dealing with retirement matters. Additional meanings for the terms may be found in a dictionary.

3 C's Lenders look for an ability to repay debt and a willingness to do so, and sometimes for a little extra security to protect their loans. They speak of the three C's of credit: capacity, character, and collateral.

Accounts Payable:

The amount of money that a company owes to its creditors.

Accounts Receivable:

The amount of money that is owed to a company for goods or services that the company has sold on credit.

Accrued Interest: Is the interest that has been earned but is not yet due because the interest payment date has not yet come.
Accident and health insurance: Coverage that pays benefits in case of sickness, accidental injury or accidental death. It sometimes provides for loss of income or debt payment if taken out in connection with a loan.
Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Adjusted balance: A method used by some credit card issuers in which they subtract all payments made during the month, then add the finance charges.
Arbitration: A dispute-resolution method in which an impartial third party, agreed upon by all sides beforehand, makes a decision.
Air miles: One of the most popular rewards issued by airline-affiliated co-branded cards. Air miles are earned with every use of the card, and then transferred monthly to the cardholder's account with that airline.
Amortization: The payment of a debt in installments over an agreed-upon period, during which principal and interest are paid off.
Amortization table: Mathematical formula for calculating a borrower's monthly payments, based on the amount borrowed, the interest rate and the term of the loan.
Amortization Period (Real Estate): The actual number of years it will take to repay a mortgage loan in full. This can be well in excess of the loan's term. For example, mortgages often have five-year terms but 25-year amortization periods.

Annual Percentage Rate (APR):

An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Arrears: Interest payments, accrued since the last payment, which are still owed but that have not been paid yet.

Asset:

Something that is owned - a physical asset, such as a car or a house, or a financial asset, such as cash or a Savings Account, Guaranteed Investment Certificate, Stocks, Bonds, RRSPs , business interest, insurance polices etc.

Annual fee: Most credit cards carry an annual administration fee, charges are linked to the amount of credit extended.
Affinity card: A card offered by two organizations, one a lending institution, the other a non-financial group. Schools, nonprofit groups, pro wrestlers, popular singers and airlines are among those featured on affinity cards. Usually, use of the card entitles holders to special discounts or deals from the non-financial group.
Assets: Personal possessions of value, including cash, real estate and investments.
Assignment: A transfer of title or interest by writing, as of lease, bond, note, or bill of exchange; a transfer of the whole of some particular estate or interest in lands. (b) The writing by which an interest is transferred. (c) The transfer of the property of a bankrupt to certain persons called assignees, in whom it is vested for the benefit of creditors.
Arbitration: A dispute-resolution method in which an impartial third party, agreed upon by all sides beforehand, makes a decision.
Approval: The acceptance by both parties are to the terms and conditions of the loan. The lender will typically send a notice of approval.
Authorized user: Any person to whom you give permission to use a credit card account.
Auto insurance score: Like a credit score, this score is based on information found in a consumer's credit file. Insurance companies consider auto insurance scores when pricing policies. Having black marks on your credit report could really bump up your auto insurance costs. Other factors that affect the cost of your auto insurance include your age, marital status, driving record, the type of car you drive and whether you live in an urban or rural area.
Average daily balance: This is the method by which most demand loans or credit cards calculate your payment due. An average daily balance is determined by adding each day's balance and then dividing that total by the number of days in a billing cycle.
Average daily balance calculation: The daily balance is multiplied by a loan's monthly periodic rate, which is calculated by dividing the annual percentage rate by 12. A loan with an annual rate of 18 percent would have a monthly periodic rate of 1.5 percent. If that loan had a $500 average daily balance it would yield a monthly finance charge of $7.50.
Audit: An examination and report usually conducted by a third party. Internal Audit may be carried out by a companies own personal.
Automated Banking Machines (ABM's): Terminals that allow customers to perform many everyday banking tasks, e.g.. deposits, withdrawals, bill payments and transfers between accounts.
Back-end ratio or back ratio: The sum of the house payment and all other monthly debt -- credit cards, car payments, student loans and the like -- divided by before-tax income. Traditionally, lenders were loath to extend borrowers' back-end ratios past 36 percent, but they often do now.
Balance transfer: The process of moving an unpaid credit card debt from one issuer to another. Card issuers sometimes offer teaser rates to encourage balance transfers coming in and balance transfer fees to discourage them from going out.
Balance transfer fee: The fee charged to customers for transferring an outstanding balance from one card to another.
Balloon loan: A loan in which the payments aren't set up to repay the loan in full by the end of the term. At the end comes the balloon payment -- one that is larger than the other, periodic payments and pays off the remaining principal.
Balloon payment:

A loan installment that is larger than the other, periodic payments and pays off the remaining principal.

Bank Rate:

The rate of interest charged by the Bank of Canada to the chartered banks on loans made to the chartered banks. Such loans are usually only made when the banks are short of funds and cannot readily borrow them from anyone other than the Bank of Canada.

Basis Point: 1/100th of 1% in yield; hence 50 basis points is 1/2 of 1%.
Book debts: A term used in banking for trade debts or receivable normally assigned to a bank as security for a operating line of credit.
Bridge Financing: Interim financing of sort or another.
Buying on Margin: Purchasing a security partly with borrowed money.
Cash Advance: The term used to when no goods or services are purchased and monies are provided in cash. Credit charges are applied the day the advance is made, whereas purchases are accounted in the normal fashion.
Chattel: Personal property other than interest in land

Collateral:

Assets pledged as security for a loan. If the borrower defaults on payment, the lender may dispose of the property pledged as security to raise money to repay the loan.

Collateral Mortgage: A loan backed up by a promissory note and the security of a mortgage on a property. The money borrowed may be used for the purchase of the property itself or for another purpose, such as home renovations or a vacation.

Compound Interest:

The total return produced by having interest and the reinvestment of interest added to the capital amount outstanding.

Consumer Debt: This term applies to debt incurred for consumable or depreciating assets that aren't considered investments. Items include credit card debt, store-financed consumer purchases, car loans, family loans that will be repaid, etc.
Cosigner: Another person who signs your loan and assumes equal responsibility for it.

Credit inquiry:

An "inquiry" shows the name of the company or individual who has requested your credit file. Each inquiry is listed on the credit file so that you know who has obtained a copy of it. In addition to checking your file when you first apply for credit, credit grantors typically request regular updates of your credit file after an account has been opened, when it is being renewed or for limit increases. These are listed as "update" inquiries in a separate section of your credit file. They are for your information only and are not displayed to other credit grantors.

Credit file:

Your credit file is created when you first borrow money or apply for credit. On a regular basis, companies that lend money or issue credit cards to you - including banks, finance companies, credit unions, retailers - send specific factual information related to the financial transactions they have with you to credit reporting agencies.

Credit Rating:

Every piece of credit history information in your credit file is assigned a rating by the credit grantor. The most common ratings are "R" ratings. These are known as North American Standard Account Ratings and are the most frequently used. The "R" indicates that the item being described involves revolving credit. If you always pay on time, it will be coded an R1. If an amount was written off because you never paid it back, it is coded R9. The R ratings are a coding system that translates "on time", "one month late", "two months late", etc., into two-digit codes

Credit Score:

is a numeric value assigned by credit grantors to indicate how likely someone is to pay back a loan or credit card according to the agreed repayment terms. It is an indicator of the level of risk that a borrower might represent. It is used as a predictor of future performance. Credit grantors often use an automated scoring process to help make that risk assessment.

Creditor: A person or business from whom you borrow or to whom you owe money.
Credit Insurance: Health, life, accident, or disruption of income insurance designed to pay the outstanding balance of debt.
Credit Loss: A loan receivable that has become uncollectable and is written off.

Credit Repair Clinic:

A independent business that offers for a fee to fix my poor credit rating. However, credit granters state that only responsible credit practices over time can improve a poor credit history.

Creditworthiness: Past, present and future ability to repay debts.

Gross Debt Service Ratio (GDS):

The percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes, secondary financing, space heating, and 50% of condominium fees, if applicable). Most lenders prefer that the GDS be no more than 30%.

Credit counseling:

This type of organizations is not the same as Credit Repair Clinics, and can offer you professional advice on how to improve your credit practices.

Debt:

An obligation to repay a sum of principal, plus interest. In corporate terms, debt often refers to bonds or similar securities.

Debt Cards:

A card that allows the cost of a purchase to be automatically deducted from the customer's bank account and credited to the merchant.

Debt Capacity:

An assessment of a person of firms ability and willingness to repay a loan from anticipated future income or cash flow of other sources.

Debt Financing: The raising of capital through the creation of corporate debt by issuing a form of document (bond, note, debenture) evidencing the amount owned and payable on specified dates or on demand.
Default: A borrower defaults on his obligations when he fails to make a required payment of principal or interest at a specified time.
Demand Line of Credit/Loan: A line of credit that enables a customer to borrow on a daily or on demand basis. Credit cards are a prime example. A demand loan must be repaid in full on demand.
Depreciation: It is a bookkeeping entry representing the decline in value of an asset that is wearing out.

Direct Debt:

A means of authorizing recurring payments (e.g. mortgage payments, insurance premiums) to be drawn on an account.

Direct deposit/Direct Funds Transfer (DTF):

A means of authorizing payment made by governments or companies to be deposited directly into a recipient's account. Used mainly for the deposit of salary, pension and interest cheques.

Direct Placement:

Selling a new issue not by offering it for sale publicly but by placing it with one or several institutional investors.

Disposable Income: Is defined as total consumer income less taxes and government transfers.
Documentary Credit: Written undertaking by a bank on behalf of an importer authorizing an exporter to draw drafts on the bank up to a specified amount under specific terms and conditions. Some time know as commercial letter of credit

Domicile:

The "official" residence of an individual. For insurance contracts, the province of domicile determines under which provincial laws the deceased estate will be probated. Everyone has a "domicile of origin" until they adopt a "domicile of choice".

Due Diligence: A term and process used to Identify any risks and issues relating to a proposed transaction. Process of systematically evaluating all information, and verity that it is, what is proposed to be.
Durable Goods: Orders for durable goods-products expected to last more than three years, such as business machinery and major household appliances Retail sales of durable goods to consumers are another leading indicator. Because such purchases can be put off during bad times, any increase reflects a changing trend in consumer spending.

Effective Annual Interest Rate:

The rate that is actually earned by the end of a year.

Effective Interest Rate (Real Estate):

A variable interest rate translated into the rate that would be paid if the interest was compounded on a semi-annual basis.

Export Credit:

Insurance to cover political and/or commercial risks of selling goods or services in foreign markets.

Export Financing:

Financing products offered by Banks and Government agency to support the activities of Canadian companies expand into foreign markets, consisting of loans, guarantees, letters of credit, insurance.

Endorse: To sign the back of a cheque in order to cash it.

Foreclosure:

A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Finance Charge: The total accumulated interest charges that the account attracts, plus any transaction fees.
Fraud Alert: A statement is added to your file to alert credit grantors that you may be a victim of fraudulent activity.
Grace Period: Usually occurs at the start of a loan period, normally associated with credit card services. Length of time during which repayments of loan principal are excused.
Gross Debt Service Ratio (GDS): The percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes, secondary financing, space heating, and 50% of condominium fees, if applicable). Most lenders prefer that the GDS be no more than 30%.
Governing Law: Refers to the laws by which the contract and agreement's are established and will be enforced.

Gross Effective Rent (to tenant - Real Estate):

This is the annualized "all-in" average rent to be paid by the tenant over the term. To calculate, divide the total present value value cost of occupancy by the area. Take the present value per square foot and amortize it over the term of the lease at an appropriate discount rate. The monthly payment multiplied by 12 is the gross effective rent on the lease. The (GER) can be used to compare scenarios whose lease terms are not exactly the same.

Gross Income:

Income before taxes including wages, income from investments, monetary gifts, and liquid assets.

Guarantor:

A third party who agrees to repay any outstanding balance on a loan if you fail to do so. A guarantor is responsible for the debt only if the principal debtor defaults on the loan.

Identify fraud:

When somebody has lost or had your personal identification stolen and is being use to obtain goods or services illegally.

Home Banking:

A way to access bank accounts by phone or by computer (EDI). Typically customers can transfer funds, pay bills and make account inquiries.

Home Equity Loan:

A home equity loan is a line of credit secured by your home. Also called an "equity loan" or a "second mortgage," the Bank gives you the line of credit and places a second mortgage loan on your home until the debt is paid off. Once the debt is paid off, you can apply again for something else.

Insolvent:

You are insolvent if you have debt obligations in excess of $1,000 and are unable to meet your obligations as they come due, have ceased making payments, or have debts due and accruing which exceed the value of your assets.

Interac

 

Interac Direct Payment:

Canada's largest shared network of ABMs. It allows cardholders to access their accounts from any ABM on the network regardless of which financial institution owns the machine.

A method of paying for goods and services electronically with the funds taken immediately and directly from your bank account and transferred directly into the merchant's account. You use your banking card to do this.

Interest:

The fee charged for the use of money supplied by a lender.

Interest Expense: Is the interest paid on money borrowed to earn investment income.
Interest Rate: A fixed, specified ratio of compensation paid to a lender by a borrower on the amount loaned.
Late Charge: The lender may impose a its minimum fee for a late payment. If delinquency is a common occurrence the lender may impose its maximum charge ($100.)
Letter of Credit: A written undertaking form a bank guaranteeing payment.
Leverage: The use of borrowed money to buy more of an asset than would otherwise be possible in order to increase the potential profit earned on that asset.

Liabilities:

What you owe.

Lien: A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Margin:

The amount of money supplied by an investor as a portion of the total funds needed to buy or sell a security, with the balance of required funds loaned to the investor by a broker, dealer, or other lender.

Margin Account:

A special account set up by a broker for a client who wants to buy and sell securities using margin.

Margin Call:

A call from a broker to a client asking for more money to back up a security purchased on margin when such a security has declined in value. If more money is not supplied, the security is usually sold by the broker.

Mezzanine finance: A loan advanced prior to a firm going public. Venture capitalists are active at this stage of a corporations growth
Mortgagee:

The lender.

Mortgagor: The borrower.

Obligation:

Another name for debt.

Overdraft: The withdrawal from a bank account of an amount greater than the positive balance in the account. Often used to refer to a negative balance in one's account.

Payee:

The name of the person to whom the money in a cheque is to go.

Personal disposable income:

Personal income minus personal income tax payments. Also called “take-home pay.”

Personal Identification Number (PIN):

A security code known only to the bank card holder and used to access on-line financial services.

Personal Net Worth:

Total assets minus total liabilities of an individual.

Personal Savings:

The difference between personal disposable income and personal consumption spending.

Personal Unsecured Loans:

These are loans that require no collateral and are not "secured" by any real assets.

Personal Guarantee:

A legal contract binding a individual with the responsibility for payment of a debt or performance of some obligation if the person and or a company fails to perform.

Promise to pay: The statement the borrower makes within the signed agreement to the lender that specifies how the loan is to be repaid, the costs and and fees incurred if legal action is taken to recover the debt.
Prime Rate: The rate at which banks will lend to their best (prime) customers. The all in cost of a bank loan to a prime credit equals the prime rate plus the cost of holding compensating balances.

Promissory Note:

1) An unconditional promise to pay on demand or by a fixed date a certain amount of money.

2) A written promise to pay money or money's worth usually for goods and/ or services received.

Refinance (Real Estate): To pay off (discharge) a mortgage and any other registered encumbrances and arrange for a new mortgage with the same lender.
Revolving Line of Credit: Is designed a short-term financing loan. Normally associated with business activities where the interest is linked to the lenders prime rate.
Revolving Loan: (also known as borrowing via overdraft) is a variable rate operating line of credit. It provides a credit facility on your business account up to a pre-approved limit.

Receivable:

Amounts payable to a person or corporation for goods and/or services produced, sold or rendered for which a bill has been sent.

Receiving Order:

A court order made in response to a petition from your creditors, that effectively vests your property to a trustee, who will administer your estate in accordance with the Bankruptcy and Insolvency Act.

Residence (Student Loan):

For the purpose of qualifying for a Canada student loan, the province or territory of residence is where the student has most recently lived for a least 12 months consecutive months excluding full-time attendance at a post-secondary institution.

Reverse Mortgage: Reverse mortgages allow individuals with significant equity in their homes to use it as a source of income. Individuals receive either a lump sum or a series of payments and use their residence as collateral. The principle and interest is repaid from the estate upon death or sale of the home. Reverse Mortgages are currently available to residents of British Columbia and Ontario. The amount of equity ranges from 15% to 45%.
Personal Identification: Contains key identification information, such as your name, address, birth date and Social Insurance Number (SIN).
Public Record Information: Contains information about secured loans, bankruptcies and/or judgments.
Rating What it Means:

R0 Too new to rate; approved but not used
R1 Pays (or paid) within 30 days of payment due date or not over one payment past due
R2 Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due
R3 Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due

R4 Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due
R5 Account is at least 120 days overdue, but is not yet rated "9"
R7 Making regular payments through a special arrangement to settle your debts
R8 Repossession (voluntary or involuntary return of merchandise)
R9 Bad debt; placed for collection; moved without giving a new address.

Smart card:

A card with an imbedded computer chip which stores more information, performs more functions and is more secure than a credit card or debit card.

Solvent: Being able to meet maturing obligations.
Third-Party Collection Agency: Holds information about any involvement with a collection agency trying to settle a debt.

Title:

A document that gives evidence of an individual's ownership of property.

Total debt ratio (TDS) (Real Estate): The percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as payments on a car loan.
Trade Information: Provides details of your credit transactions and shows whether payments are being made. Each of these "trade" items is evaluated by the credit grantor.
Unencumbered: Free and clear of all liens.

Variable-Rate Loan:

Loan made at an interest rate that fluctuates with the prime.

Variable-Rate Mortgage: A mortgage loan for which the rate of interest changes as money market conditions change, usually not more than once a month. The monthly payment stays the same for a specified period. However, the amount applied towards the principal changes according to the change (if any) in the rate of interest.

This Glossary of financial terms was created by Fiscal Agents Financial Information Services, Research Department. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, electronic, photocopying, recording, or otherwise, without the prior written permission of Fiscal Agents. Copyright Fiscal Agents © 2000. All Worldwide Rights Reserved. Click to contact Glossary editor or see the permissions page.





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