Mortgages 

Mortgage Principles 

Mortgage prinicpal is the inital amount borrowed from a lender, excluding interest, and is reduced over time through payments to build home equity. It represents the outstanding loan balance and forms the basis for calculating interest payments. 

Amortization period 

The amortization period is the length of time, usually in years, required to repay a loan in full, including prinicpal and interest. It dictates the size of regular payments, a longer period lowers montthly payments but increases total interest paid. 

Mortgage term 

A mortgage term is the duration a specific mortgage contract is in effect, usually lasting 1 - 10 years, with 5 years being common. It is distinct from the amortization period. At the terms end, the loan must be renewed, repaid or renegotiated. 

Down payment 

A down payment is the intial, upfront cash payment made towards the purchase price of a home, representing a percentage of the total property value. It acts as buyer equity and reduces the total mortgage amount required. Minimum requirements typically range from 5% to 20% of the purchase price, depending on total cost. 

Fixed mortgage rate 

A fixed mortgage rate is a home loan where the interest rate remains the same for the entire term, ensuring consistent, predictable principal and interest payments. This provides stability against rising rate but means you won't benefit if market rates drop, unlike variable rate mortgages. 

Variable mortgage rate 

A variable mortgage rate is a home loan interest rate that fluctuates with market conditions, specifically tied to a lenders prime rate. While the interest rate changes, payments often stay consistent, adjusting the balance between principal and interest paid. It offers potential interest savings compared to fixed rates. 

Prime rate 

The prime rate is the benchmark interest ratw Canadian financial institutions use to set variable rates for loans, lines of credit, and mortgages. It is the lowest rate banks typically offer their best customers. 

Trigger rate 

A trigger rate is the interest rate level at which a fixed payment variable rate mortgage no longer covers the interest costs, meaning the entire payment goes toward interest rather then paying down the principal. When this rate is hit, lenders usually require the borrowers to increase payments, pay a lump sum, or convert to a fixed. 

Annual percentage rate 

The annual percentage rate is the total yearly cost of borrowing money, expressed as a percentage, which includes both the nominal interest rate and additional fees. It provides a comprehensive view of a loan's cost, allowing for accurate comparison between financial products. 

Closed mortgage 

A closed mortgage is a lending agreement with a fixed term that offers lower interest rates in exchanges for restricted flexibility, typically penalizing borrowers for breaking the contract or paying off the principal early. It is ideal for homeowners seeking stability who do not plan to sell or refinance soon. 

Conventional mortgage 

A conventional mortgage is ahome loan from a private lender that does not exceed 80% of the property's appraised value or purchase price, requiring a down payment of at least 20%. Because the loan to value ratio is 80% or less, these loans are generally uninsured, saving borrowers on insurance premiums. 

High ratio mortgage 

A high ratio mortgage is a home loan where the down payment is less than 20% of the property's purchase price, resulting in a loan to value ratio higher than 80%. In Canada, these mortgages require mandatory default insurance to protect the lender, allowing buyers to purchase homes with as little as 5% down. 

Porting

Porting a mortgage is the process of transferring your exsisting mortgage, including its interest rate, terms, and remaining balance from your current home to a new property when you move. It allows homeowners to avoid hefty prepayment penalties and keep a lower, favorable interest rate if current market rates are higher. 

Closing costs 

Closing costs are one time fees and expenses, seperate from the down payment, paid upon finalizing a home purchase, typically 1.5% - 4% of the purchase price. These include legal fees, land transfer taxes, title insurance and appraisal fees. They must ususally be paid before closing, not rolled into the mortgage. 

Appraisal

A mortgage appraisal is an independant, professional assessmnt of a property's fair market value, ordered by a lender to ensure the home's value justifies the loan amount. It protects lenders from over lending and borrowers from over paying, and is mandatory for home purchases. refinancing and equity loans. 

Mortgage default insurance 

Mortgage default insurance, often called CMHC insurance or mortgage loan insurance, is mandatory coverge required in Canada for homebuyers with a down payment of less than 20% of the home price. It protects lenders from borrower default, enabling buyers to purchase homes with as little as 5% down. 

Prepayment charge 

A prepayment charge is a fee charged by lenders when a borrower pays off a mortgage, or a portion of it, earlier than agreed, such as by selling the home, refinancing, or making large lump sum payments. Common in closed mortgages, these penalties often represent three months interest or an interest rate differential. 

Stress test 

A mortgage stress test is a mandatory financial assessment in Canada that ensures borrowers can still afford payments if interest rates rise or income drops, Lenders calculate if you qualify at a higher "stress tested" rate either 5.25% or 2% higher than your contracted rate, whichever is higher. 

Gross debt service ratio 

The gross debt service (GDS) ratio is a formula lenders use to determine the maximum mortgage a borrowers can afford, representing the percentage of gross monthly income spent on housing costs. It includes mortgages payments payments, property taxes, heating, and 50% of condo fees. A standard maximum GDS ratio is 32% - 39% though it varies. 

Total debt service ratio 

The total debt service (TDS) ratio is a percentage of gross annual household income require to cover all debts, including mortgage payments, property taxes, heating, and all other debts. Lenders use this to assess affordability, generally requiring it to be 40% - 44% or lower. 



Investments 

Equities 

Equities, commonly known as stocks or shares, represent ownership in a company. By purchasing equities, investors acquire a fractional stake in a business, aiming to gain from capital appreciation or income through dividends. They are riskier than fixed income asstes, but typically offer higher long term growth potential. 

Bonds 

A bond is a "fixed income" loan made by an investor to a governement or corporation, which acts as a debt security. The issuer promises to pay regular interest payments, often called coupon payments, usually twie a year, and return the original principal amount upon a specific maturity date. 

Mutual funds 

A mutual fund is a type of investment vehicle that poools money from many investors to purchase a diversified portfolio of stocks, bonds or other securities. Professionally managed by experts, these funds allow individual investors to own a small portion of a large, varied portfolio, reducing risk compared to buying individual stocks. 

Exchange traded fund 

An exchange traded fund (ETF) is a type of investment fund that holds a basket of securities, such as stocks, bonds, or commodities, and trades on stock exchanges like individual stocks. They provide instant diversification, allowing investors to buy a single share that represents ownership in many different assets. ETF generally offer lower fees than mutual funds and can be bought or sold throughout the trading day at flucuating market prices. 

Guaranteed investment certificate 

A guaranteed investment certificate (GIC) is a secure Canadian investment that guarantees 100% of your intial principal while earning interest over a fixed period. It is a low risk option where you lend money to a finanical institution, receiving a set return upon maturity. 

Assets allocation 

Asset allocation is an investment strategy that divides a portfolio amoung different asset classes, primarily stocks, bonds, and cash, to balance risk and reward based on an individuals goals, risk tolerance and time horizon. It serves as a diversification tool to mitigate risk, as different assets often perform differently under similar market conditions. 

Risk tolerance 

Investment risk tolerance is an investors psychological willingness and ability to endure declines in their portfolio's value due to market volatility. It represents the balance between the desire for higher returns and the emotional comfort level with potential losses. 

Time horizon 

A time horizon is the total lengh of time an investor expects to hold an investment or the planned duration for a specific financial goal before needing the funds. It dictates risk tolerance, longer horizons allow for higher risk/growth, while shorter horizons require stability. 

Dollar cost averaging 

Dollar cost averaging (DCA) is an investment strategy where you invest regardless of the share price. This approach reduces maket volatility risk by buying more shares when prices are low and fewer when prices are high, ultimately lowering the average cost per share overtime. 

Capital gain/loss 

A capital gain is the profit from selling a capital asset for more than its adjusted cost base, while a capital loss occurs when it is sold for less. In Canada, 50% of the capital gain is taxable, and 50% of the loss is allowable, which can offset gains. 

Dividend 

A dividend is a portion os a compnay's earnings paid out to its shareholders, usually in cash, as a reward for their investment. Approved by the board of directors, they are typically paid on a regular basis, often quarterly, out of the company profits. Dividends provide income to investors, oftens from stable, established companies. 

Yield 

Yield is the annual income generated by an investment, expressed as a percentage of the investment's current price or face value. It represents the cash return on you investment, seperate from capital gains or losses. 

Management expense ratio 

The managemenr expense ratio (MER) is the total annual cost of owning a mutual fund of ETF, expressed as a percentage of its average daily net assets. It covers management fees, operating expenses, and trailing commissions. The MER is automatically deducted from the fund's returns, meaning posted returns are after. 

Bull market 

A bull market is a period wher financial asset prices rise by 20% or more from recent lows, ypically accompanied by investor optimism, high confidence and economic growth. It signifies a period of economic expansion, low unemployment and rising corporate profits, often lasting for months or years. 

Bear market 

A bear market is a period when board market indices fall by 20% or more from recent highs, usually lasting several months and signaling investor pessimism, economic slowdown or recession. It is characterized by sustained price declines, high volatility and fear. 

Tax free savings account (TFSA)

A tax free savings account is a flexible, registered Canadian investment account that allows individuals aged 18+ to save or invest money tax free. Contributions are made with after tax dollars, but all interest, dividends and capital gains earned inside the account are completely tax free upon withdrawl. 

Registered retirement savings plan (RRSP)

A registered retirement savings plan is a Canadian governemnt registered account designed for retirement savings, allowing tax deductible contributions contributions and tax deferred growth. It reduces your taxable income, with taxes payable only upon withdrawl, typically at a lower tax bracket in retirement. 

Liquidity 

Liquidity is the speed and ease with which an asset an be converted into cash without significantly affecting its price. High liquidity assets, like stocks, or cash can be sold almost instantly at fair value. Low liquidity such as real estate, take longer to sell and may require a lower price to sell quickly. 

Volatility 

Volatility meaure how rapidly and dramtically an asset's price moves, acting as a key indicator of risk and potential return. High volatility means sharp, fast price swings, while low volatility imp;lies gradual, steady changes. 

Compound interest 

Compound interest is "interest on interest", where you earn returns on both your initial principal and the accumlated interest from previous periods. Unlike simple interest, this casues investents to grow exponentially over time rather than linearly. It is often described as a "snowball effect" where the investment grows faster the longer it is held. 

Income tax 

Taxable income 

Taxable income is the portion of your total gross income used to calculate federal ad provincial taxes, determined by subtracting eligible deductions from your total earnings. It inludes employment wages, business profits, investment income and certain benefits. Tax is only paid on this final amount, not gross income. 

Marginal tax rate 

A marnginal tax rate is the percentage of tax applied to your next dollar of income, representing the highest tax bracket you earnings reach. Under progressive tax systems, only income within a specific rannge is taxed at that rate, not your total income. It determines the tax impact of earning extra income. 

Effective tax rate 

The effective tax rate is the actual percentage if your total income an individual or corporation pays in taxes, calculated by dividing total tax paid by total income. Unlike the marginal tax rate, the effective rate reflects the true, average tax burden after deductions, credits and exemptions. 

Basic personal amount 

The baisc personal amount (BPA) is a non refundable tax credit allowing Canadian residents to earn a specific amount of income - up to $16,129 for 2025 - without paying federal income tax. It acts as a tax free threshold, reducing the tax owed by the credit amount multiplied by the lowest tax rate. 

Tax deductions 

A tax deduction is an expense or amount subtracted from your total income to lower you taxable income, ultimtely reducing the total tax you owe. By decreasing the amount of income subject to taxation, deductions save you money based on your marginal tax brackey. Common examples include RRSP contributions, childcare costs, and employment expenses. 

Tax credits 

A tax credit is a dollar for dollar reduction in the actual amount of income tax you owe to the government, acting like a direct discount on your tax bill. Unlike deductions, which lower the income subject to tax, credits are applied after taxes are calculated to directly reduce the final amount owed, potentially resulting in a refund. 

Non refundable tax credits 

A non refundable tax credit is an amount deducted directly from taxes owed, reducing the tax liability but not resulting in a refund if the credit exceeds the total tax owed. These credits can redue tax payable to zero but cannot result in a refund of the excess credit. 

Refundable tax credits 

A refundable tax credit is a tax incentive that reduces your income tax liability and can provide a refund, even if you owe no taxes or the credit exceeds your total tax owed. Unlike non refundable tax credits that stop at zero, refundable credits pay the excess amount directly to you, acting as a net financial benefit, often supporting lower income earners. 

Tax return 

A tax return is an annual form or set of forms submitted to government tax authorities to report annual income, claim deductions/credits and calculate whether taxes are owed or a refund is due. It acts as a self assessment determining if you paid enough tax thoughout the year, usually filed by Apirl 30th. 

Information slips 

An information slip os an official tax document, primarily used in Canada, detailing specific income types, deductions or investments for a tax year. It enables individuals to report income accurately and helps tax authorities verify copliance. Examples include T4, T5, and T4A. 

Notice of assessment 

A notice pf assessment is an official statement sent by the CRA after processing your annual income tax return. It summarizes your reported income, deductions, tax credits and final tax balance confirming your tax standing. It acts as a "receipt" for your tax return. 

Balance owing 

A balance owing for income tax is the final amount payable to the authority when total tax credits and deductions are less than the total tax payable for the year, often caused by under witholding tax on income. It represents a tax debt that must be paid by the deadline, to avoid penalties and interest. 

Carry forward 

Carry forward income tax allows taxpayers to move unused tax credits, deductions, or losses from the current tax year to future years to reduce future tax payable. It acts as a "tax bank" for items like tuition fees, charitable donations, or business losses, helping to optimize tax liability when income is higher. 

Audit 

An income tax audit is a detailed examination by the CRA  of  taxpayers financial records, books and tax return to verify accuracy, compliance with tax laws, and proper reporting of income/deductions. It is a risk based process, not just random, used to ensure fairness in the self assessment system, often triggered by red flags. 

Lower/lowest bracket 

The lower/lowest braket in income tax refers to the first, base level income tier, which is taxed at the lowest rate, 14% on the first $58,523 of taxable income in 2026. This braket dictates the minimum rate applied to early income and is often called the "base tax rate", "first bracket", or "initial tier".  
 

Indexation 

Indexation is income tax is a mechanism that adjusts the purchase price of long term assets or tax brackets based on inflation, reducing taxable capital gains or preventing "bracket creep". It uses a price index to increase the cost basis of assets, ensuring tax is paid on real gain than inflationary increases.