Financial Glossary

The total length of time it takes to pay off your mortgage in full. In Canada, the maximum amortization for insured mortgages is 25 years (30 years with 20%+ down).

The total yearly cost of borrowing, including interest and fees, expressed as a percentage. A credit card might advertise 19.99% interest but have a higher APR once annual fees are included.

How you divide your investment portfolio among different asset types like stocks, bonds, and cash. Your allocation should match your risk tolerance and time horizon.

A legal process for people who can't repay their debts. In Canada, a Licensed Insolvency Trustee handles the process. It provides a fresh start but seriously impacts your credit for 6-7 years.

The amount of income every Canadian can earn tax-free each year. For 2024, the federal basic personal amount is $15,705. Each province has its own amount as well.

The profit you make when you sell an investment for more than you paid. In Canada, a portion of capital gains (the inclusion rate) is added to your taxable income.

The percentage of a capital gain that counts as taxable income. In Canada, the inclusion rate for individuals is 50% on the first $250,000 of gains and 66.67% above that.

The ability to save unused contribution room or deductions for use in a future year. For example, unused RRSP room and TFSA room carry forward indefinitely.

The money coming in (income) minus the money going out (expenses) over a period. Positive cash flow means you have money left over to save or invest.

A federal agency that insures your eligible deposits (up to $100,000 per category) at member banks if the bank fails. Covers chequing, savings, GICs, and more.

An everyday bank account for paying bills, making purchases, and receiving your paycheque. Usually has unlimited transactions but earns little or no interest.

Fees beyond the purchase price when buying a home, including land transfer tax, legal fees, home inspection, title insurance, and adjustments. Budget 1.5-4% of the purchase price.

Mandatory mortgage insurance if your down payment is less than 20%. It protects the lender (not you) if you default. The premium (up to 4% of the mortgage) is added to your loan.

A fixed amount you pay each time you use a health service (e.g., $10 per prescription). Your insurance covers the rest. Common in employer health and dental plans.

Auto insurance that pays to repair or replace your car if you're in an accident, regardless of who's at fault. Optional, but usually required if you have a car loan or lease.

Interest earned on both your original money and on the interest it has already earned. Over time, compounding creates a snowball effect that accelerates your investment growth.

Auto insurance that covers damage to your car from non-collision events like theft, hail, fire, vandalism, or hitting an animal. It's optional but often worth having.

A single loan used to pay off multiple debts, combining them into one monthly payment at (ideally) a lower interest rate. It simplifies repayment but doesn't reduce what you owe.

A legally binding agreement negotiated through a Licensed Insolvency Trustee where you repay a portion of your debt over up to 5 years. It's a Canadian alternative to bankruptcy.

The federal government agency that administers tax laws, collects taxes, and delivers benefit programs like the GST/HST credit and Canada Child Benefit.

A company that collects and maintains your credit history. Canada has two: Equifax and TransUnion. Lenders report your activity to them and check your file when you apply for credit.

A number (typically 300-900 in Canada) that represents how reliable you are as a borrower. It's based on your payment history, credit utilization, length of credit history, and more.

A member-owned financial institution that operates similarly to a bank but is not-for-profit. Credit unions often offer lower fees and better rates. Deposits are insured provincially.

The percentage of your available credit that you're currently using. Keeping it below 30% is good for your credit score. For example, using $1,500 of a $5,000 limit is 30%.

The amount you pay out of pocket before your insurance starts covering costs. For example, with a $500 deductible on a $2,000 claim, you pay $500 and insurance pays $1,500.

An automatic electronic transfer of money straight into your bank account, commonly used by employers for paycheques and by the CRA for tax refunds or benefit payments.

A payment a company makes to its shareholders from its profits. Canadian dividends receive favourable tax treatment through the dividend tax credit.

Investing a fixed dollar amount at regular intervals (e.g., $200 every payday) regardless of the price. This smooths out market ups and downs and removes the stress of timing the market.

The upfront cash you put toward a home purchase. In Canada, the minimum is 5% on the first $500K, 10% on the portion above $500K, and 20% for homes over $1M.

The overall percentage of your total income that you actually pay in tax, after all brackets are applied. It's always lower than your marginal rate.

Money set aside in an easily accessible account (like a HISA) to cover unexpected expenses or job loss. A common target is 3-6 months of essential living expenses.

A basket of investments (stocks, bonds, etc.) that trades on the stock exchange like a single stock. ETFs typically have low fees and are a popular way to diversify.

A specific situation, condition, or event that your insurance policy will not cover. For example, most travel insurance excludes pre-existing medical conditions.

A registered account for first-time home buyers. Contributions are tax-deductible (like an RRSP) and withdrawals for a home purchase are tax-free (like a TFSA). Up to $8,000/year, $40,000 lifetime.

A fixed rate stays the same for the entire term (e.g., 5 years). A variable rate moves up or down with the Bank of Canada's overnight rate, so your payments may change.

A low-risk investment where you lock your money in for a set period (e.g., 1-5 years) in exchange for a guaranteed interest rate. Your principal is protected.

A revolving line of credit secured against your home's equity. You can borrow up to 65% of your home's value (minus your mortgage). Rates are lower than unsecured debt but your home is collateral.

A savings account that pays a higher interest rate than a regular savings account. Online banks in Canada often offer the best HISA rates.

The portion of your home that you actually own, calculated as your home's market value minus what you still owe on the mortgage. It grows as you pay down your mortgage and as your home appreciates.

A fund that automatically tracks a market index (like the S&P 500 or TSX Composite) instead of trying to beat it. Index funds are passively managed and have very low fees.

The rate at which prices for goods and services rise over time, reducing your purchasing power. The Bank of Canada targets 2% annual inflation.

A Canadian system for sending money directly from your bank account to someone else's using their email or phone number. Most banks include it free with their accounts.

The percentage a lender charges you to borrow money, or the percentage a bank pays you for keeping money in a savings account. It can be fixed or variable.

A provincial tax you pay when you buy property, based on the purchase price. Ontario and most provinces charge it. Toronto adds a municipal land transfer tax on top.

Insurance that pays for damage or injuries you cause to others. It's a mandatory part of auto insurance in every province and a key component of home insurance.

How quickly and easily you can convert an asset to cash without losing value. A savings account is highly liquid; real estate is not.

A registered account that holds pension funds transferred from a former employer's pension plan. The money is "locked in" and generally can't be withdrawn until retirement.

The tax rate you pay on your next dollar of income. Canada uses a progressive system, so only the income within each bracket is taxed at that bracket's rate.

The annual fee charged by a fund, expressed as a percentage. A 2% MER means you pay $20/year for every $1,000 invested. Lower MERs mean more of your returns stay in your pocket.

The smallest amount you must pay on your credit card or loan each month to stay in good standing. Paying only the minimum on credit cards means you'll pay far more in interest over time.

A lender's conditional commitment to lend you up to a certain amount at a guaranteed rate (usually held for 90-120 days). It tells you your budget before you start house hunting.

A requirement that you must qualify for your mortgage at a rate higher than what you'll actually pay (the greater of 5.25% or your rate + 2%). This ensures you can handle rate increases.

A pool of money from many investors, managed by a professional fund manager who picks the investments. Mutual funds in Canada tend to have higher fees (MERs) than ETFs.

Everything you own (assets) minus everything you owe (liabilities). It's the single best snapshot of your overall financial health. It can be negative, and that's normal when you're starting out.

The CRA's electronic filing system that lets you submit your tax return online using certified software. It's faster than mailing a paper return and gets you your refund sooner.

A letter the CRA sends after processing your tax return. It confirms your assessed income, tax owed or refund, and your RRSP contribution room for the next year.

A fee charged when a payment or withdrawal is rejected because your account doesn't have enough money. Also called a "bounced" payment. Typical NSF fees are $45-$48.

What you give up when you choose one option over another. For example, the opportunity cost of spending $5,000 on a vacation is the investment growth that money could have earned.

When you spend more money than you have in your chequing account and the bank covers the difference. You'll be charged interest and/or a fee until you pay it back.

Adjusting your investments back to your target asset allocation after market movements have shifted the proportions. For example, selling some stocks and buying bonds if stocks have grown too large.

An arrangement where you give a company permission to automatically withdraw money from your bank account on a set schedule, often used for bill payments and subscriptions.

The amount you pay (monthly or annually) to keep your insurance policy active. A higher deductible usually means a lower premium.

An annual valuation of your property by a provincial agency (e.g., MPAC in Ontario) used to calculate your property taxes. It may differ significantly from the market value.

How much your money can actually buy. When inflation rises, your purchasing power drops. A dollar today buys less than a dollar ten years ago.

Replacement cost pays to replace your item with a new one. Actual cash value pays the depreciated value (what it's worth today). Replacement cost policies cost more but pay out more.

A registered account for saving for a child's post-secondary education. The government adds a 20% grant (CESG) on the first $2,500 contributed each year, up to $500/year.

An optional add-on to an insurance policy that provides extra coverage beyond the standard policy, such as a critical illness rider on a life insurance policy.

An online service that automatically builds and manages a diversified investment portfolio for you based on your goals and risk tolerance. Popular Canadian options include Wealthsimple and Questwealth.

A registered account where contributions reduce your taxable income now, and investments grow tax-free until you withdraw in retirement, when you'll likely be in a lower tax bracket.

A bank account designed for storing money you don't need right away. It earns interest but may limit the number of free withdrawals per month.

Secured debt is backed by an asset (collateral) like a car loan or mortgage. Unsecured debt has no collateral, like credit cards. Secured debt usually has lower interest rates.

A form your employer gives you each year showing your total employment income, tax deducted, CPP and EI contributions. You need it to file your tax return.

A form showing investment income you earned outside of registered accounts, such as interest from a savings account or dividends from stocks.

A range of income taxed at a specific rate. Canada has federal brackets (15% to 33%) and each province has its own brackets on top of that.

A tax deduction reduces the income you're taxed on (saving you tax at your marginal rate). A tax credit directly reduces the tax you owe (typically at the lowest bracket rate).

Life insurance that covers you for a set period (e.g., 10, 20, or 30 years). It's straightforward and affordable, paying out only if you die during the term.

A registered account where your investments grow completely tax-free. You contribute with after-tax dollars and pay no tax on withdrawals. Contribution room accumulates each year.

A cheque marked "VOID" across the front. It's used to provide your bank account details (institution, transit, and account numbers) for setting up direct deposit or pre-authorized payments.

The time you must wait after a policy starts before you can make a claim. Common in disability and health insurance. Also called an "elimination period."

Life insurance that covers you for your entire life and includes a savings component (cash value) that grows over time. It's significantly more expensive than term life.