Definition of Amortization Period

Amortization Period

The time over which all regular payments would pay off the mortgage. This is usually 25 years for a new mortgage, however can be greater, up to a maximum of 40 years.

Amortization

A method of paying off the mortgage which pays part of the principal along with interest, rather than just paying off the interest first.

Amortization

A payment plan by which a loan is reduced through monthly payments of principal and interest.

Amortization (Credit Insurance)

Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.

Annuity Period

The time between each payment under an annuity.

Grace Period

A specific period of time after a premium payment is due during which the policy owner may make a payment, and during which, the protection of the policy continues. The grace period usually ends in 30 days.

Waiting Period (Credit Insurance)

A specific time that must pass following the onset of a covered disability before any benefits will be paid under a creditor disability policy. (Also known as an elimination period).

Allowance

A sum of money set aside in the construction contract for items which have not been selected and specified in the construction contract. For example, selection of tile as a flooring may require an allowance for an underlayment material, or an electrical allowance which sets aside an amount of money to be spent on electrical fixtures.

Area Walls

Corrugated metal or concrete barrier walls installed around a basement window to hold back the earth.

aterial used to cover the interior framed areas of walls and ceilings

Automatic Benefits Payment

Automatic payment of moneys derived from a benefit.

Ballast

A transformer that steps up the voltage in a florescent lamp.

Balloon

A loan that has a series of monthly payments with the remaining balance due in a large lump sum payment at the end.

Balloon Framed Wall

Framed walls (generally over 10' tall) that run the entire vertical length from the floor sill plate to the roof. This is done to eliminate the need for a gable end truss.

Blended Payments

payments consisting of both a principal and an interest component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the term of the mortgage, but the total regular payment usually does not change.

Built-Up Roof

A roofing composed of three to five layers of asphalt felt laminated with coal tar, pitch, or asphalt. The top is finished with crushed slag or gravel. Generally used on flat or low-pitched roofs.

Bull Nose Drywall

Rounded drywall corners.

Canada Mortgage and Housing Corporation (CMHC)

The National Housing Act (NHA) authorized Canada mortgage and Housing Corporation (CMHC) to operate a mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.

Canada Pension Plan (CPP)

A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).

Closed Mortgage

A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.

Commercial Business Loan (Credit Insurance)

An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.

Compound Interest

interest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest.

Conventional Mortgage

A mortgage that does not exceed 80% of the purchase price of the home. mortgages that exceed This limit must be insured against default, and are referred to as high-ratio mortgages (see below).

Daily Interest Accumulation

Account in which interest is accrued daily and credited to the account at the end of a specified time.

Estate Planning

An insurance program designed to provide funds for insured's dependents upon death of the insured, and to also conserve, as much as possible, the personal assets that the insured wants to bequeath to heirs.

First To Die Coverage

This means that there are two or more life insured on the same policy but the death benefit is paid out on the first death only. If two or more persons at the same address are purchasing life insurance at the same time, it is wise to compare the cost of This kind of coverage with individual policies having a multiple policy discount.

Fixed-Rate Mortgage

A mortgage for which the rate of interest is fixed for a specific period of time (the term).

Gable End Wall

The triangular end of an exterior wall above the eaves formed under a gable roof.

GFI -See Ground Fault Current Interrupter

Ground Fault Current Interrupter

An electrical device used to prevent injury from contact with faulty electrical appliances and faulty wiring
electrical shocks. GFIs should not be confused with AFIs, the later are designed to prevent electrical fires. GFIs are required in new home bathrooms, kitchen, garage, out of doors and in other locations where one might be in contact with a grounded surface or body of water and an electrical appliance. Most GFI's are located in the receptacle itself or a curcuit breaker and can be identified by the presence of a 'test' and a 'reset' button.

Group Life Insurance

This is a very common form of life insurance which is found in employee benefit plans and bank mortgage insurance. In employee benefit plans the form of This insurance is usually one year renewable term insurance. The cost of This coverage is based on the average age of everyone in the group. Therefore a group of young people would have inexpensive rates and an older group would have more expensive rates.
Some people rely on This kind of insurance as their primary coverage forgetting that group life insurance is a condition of employment with their employer. The coverage is not portable and cannot be taken with you if you change jobs. If you have a change in health, you may not qualify for new coverage at your new place of employment.
Bank mortgage insurance is also usually group insurance and you can tell This by virtue of the fact that you only receive a certificate of insurance, and not a complete policy. The only form in which bank mortgage insurance is sold is reducing term insurance, matching the declining mortgage balance. The only beneficiary that can be chosen for This kind of insurance is the bank. In both cases, employee benefit plan group insurance and bank mortgage insurance, the coverage is not guaranteed. This means that coverage can be cancelled by the insurance company underwriting that particular plan, if they are experiencing excessive claims.

Guaranteed Interest Annuity (GIA)

interest bearing investment with fixed rate and term.

Guaranteed Interest Certificate (GIC)

interest bearing investment with fixed rate and term.

Guaranteed Renewal

A promise that a life insurance policy will be renewed without penalty or medical examination after the term has expired. The renewal rate can also be guaranteed.

High Ratio Mortgage

If you don't have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a mortgage Insurer, such as CMHC.

Insurable Interest

In England in the 1700's it was popular to bet on the date of death of certain prominent public figures. Anyone could buy life insurance on another's life, even without their consent. Unfortunately, some died before it was their time, dispatched prematurely in order that the life insurance proceeds could be collected. In 1774, English Parliament passed a law which restricted the right to be a beneficiary on a life insurance contract to those who would suffer an economic loss when the life insured died. The law also provided that a person has an unlimited insurable interest in his own life. It is still a legal stipulation that an insurance contract is not valid unless insurable interest exists at the time the policy is issued. Life Insurance companies will not, however, issue unlimited amounts of coverage to an individual. The amount of life insurance which will be approved has to approximate the loss caused by the death of the individual and must not result in a windfall for the beneficiary.

Insured Mortgage

An insured mortgage protects only the mortgage lender in case you do not make your mortgage payments. This coverage is provided by CMHC [Canada mortgage and Housing Corporation] and is required if a person has a high-ratio mortgage. [A mortgage is high-ratio if the amount borrowed is more than 75% of the purchase price or appraised value, whichever is less.]

Insured Retirement Plan

This is a recently coined phrase describing the concept of using Universal Life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as "the most effective tax-neutralization strategy that exists in Canada today."
In addition to life insurance, a Universal Life Policy includes a tax-sheltered cash value fund that cannot exceed the policy's face value. Deposits made into the policy are partially used to fund the life insurance and partially grow tax sheltered inside the policy. It should be pointed out that in order for This to work, you must make deposits into This kind of policy well in excess of the cost of the underlying insurance. Investment of the cash value inside the policy are commonly mutual fund type investments. upon retirement, the policy owner can draw on the accumulated capital in his/her policy by using the policy as collateral for a series of demand loans at the bank. The loans are structured so the sum of money borrowed plus interest never exceeds 75% of the accumulated investment account. The loans are only repaid with the tax free death benefit at the death of the policy holder. Any remaining funds are paid out tax free to named beneficiaries.
Recognizing the value to policy holders of This use of Universal Life Insurance, insurance companies are reworking features of their products to allow the policy holder to ask to have the relationship of insurance to investment growth tracked so that investment growth inside the policy may be maximized. The only potential downside of This strategy is the possibility of the government changing the tax rules to prohibit using a life insurance product in This manner.

Interest Option

One of several investment accounts in which your premiums may be invested within your life insurance policy.

Interest Rate

Rate charged or paid for the use of money, normally expressed as a percentage

Interest Rate Differential Amount (IRD)

An IRD amount is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage. For more information, click on compensation amounts.

Jumbo loan

A loan that exceeds the amount acceptable for sale in secondary market.

Knee Wall

A wall-like structure that supports roof rafters.

Last To Die Coverage

This means that there are two or more life insured on the same policy but the death benefit is paid out on the last person to die. The cost of This type of coverage is much less than a first to die policy and it is generally used to protect estate value for children where there might be substantial capital gains taxes due upon the death of the last parent. This kind of policy is also valuable when one of two people covered has health problems which would prohibit obtaining individual coverage.

Load-Bearing Wall

Includes all exterior walls and any interior wall that is aligned above a support beam or girder. Normally, any wall that has a double horizontal top plate.

Metal Insulation Support

16" or 24" wire rod or crisscrossed wire to hold floor insulation in place.

Mortgage broker

An independent individual (or company) who brings together borrowers and lenders together. Unlike a mortgage banker, a mortgage broker does not fund the loan. Instead, the broker originates and processes the loan, and places it with a funding source, such as a bank or thrift. Brokers typically require a fee or a commission for their services.

Mortgage (Credit Insurance)

An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for purposes of purchasing a loan secured by a home.

Mortgage Critical Illness Insurance

mortgage Critical Illness Insurance is available as an enhancement to mortgage Life Insurance. It is usually underwritten by the Assurance Company. Complete details of benefits, exclusions and limitations are contained in the Certificate of Insurance. It is recommended for all mortgagors. It can pay off your mortgage -- up predefined limit -- if you are diagnosed with life-threatening cancer, heart attack or stroke.

Mortgage Insurance

Commonly sold in the form of reducing term life insurance by lending institutions, This is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of This kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for This kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that This is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage.
The cost of mortgage lender's insurance group coverage is based on a blended non-smoker/smoker rate, not having any advantage to either male or female. mortgage lender's group insurance certificate specifies that it [the lender] is the sole beneficiary entitled to receive the death benefit. mortgage lender's group insurance is not portable and is not guaranteed. Generally speaking, your coverage is void if you do not occupy the house for a period of time, rent the home, fall into arrears on the mortgage, and there are a few others which vary by institution. If, for example, you sell your home and buy another, your current mortgage insurance coverage ends and you will have to qualify for new coverage when you purchase your next home. Maybe you won't be able to qualify. Not being guaranteed means that it is possible for the lending institution's group insurance carrier to cancel all policy holder's coverages if they are experiencing too many death benefit claims.
mortgage insurance purchased from a life insurance company, is priced, based on gender, smoking status, health and lifestyle of the purchaser. Once obtained, it is a unilateral contract in your favour, which cannot be cancelled by the insurance company unless you say so or unless you stop paying for it. It pays upon the death of the life insured to any "named beneficiary" you choose, tax free. If, instead of reducing term life insurance, you have purchased enough level or increasing life insurance coverage based on your projection of future need, you can buy as many new homes in the future as you want and you won't have to worry about coverage you might loose by renewing or increasing your mortgage.
It is worth mentioning mortgage creditor protection insurance since it is many times mistakenly referred to simply as mortgage insurance. If a home buyer has a limited amount of down payment towards a substantial home purchase price, he/she may qualify for a high ratio mortgage on a home purchase if a lump sum fee is paid for mortgage creditor protection insurance. The only Canadian mortgage lenders currently known to offer This option through the distribution system of banks and trust companies, are General Electric Capital [GE Capital] and Central mortgage and Housing Corporation [CMHC]. The lump sum fee is mandatory when the mortgage is more than 75% of the value of the property being purchased. The lump sum fee is usually added onto the mortgage. It's important to realize that the only beneficiary of This type of coverage is the morgage lender, which is the bank or trust company through which the buyer arranged their mortgage. If the buyer for some reason defaults on This kind of high ratio mortgage and the value of the property has dropped since being purchased, the mortgage creditor protection insurance makes certain that the bank or trust company gets paid. however, This is not the end of the story, because whatever the difference is, between the disposition value of the property and whatever sum of unpaid mortgage money is outstanding to either GE Capital or CMHC will be the subject of collection procedures against the defaulting home buyer. Therefore, one should conclude that This kind of insurance offers protection only to the bank or trust company and absolutely no protection to the home buyer.

Mortgage Life Insurance

A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.

Mortgage Life insurance (Credit Insurance)

Decreasing term life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage.

Mortgage Term

The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.

Mortgagee and Mortgagor

The lender is the mortgagee and the borrower is the mortgagor.

Non-participating Policy

A type of insurance policy or annuity in which the owner does not receive dividends.

Nonbearing Wall

A wall supporting no load other than its own weight.

Open Mortgage

A mortgage which can be prepaid at any time, without penalty.

Overhang

part of the roof that hangs over the wall.

Paid-Up Additions

A type of insurance policy or annuity in which the owner receives dividends, typically increases the death.

Palladian Window

One larger window with a circle top window above and usually has two smaller, rectangular windows on each side.

Participating Policy

A policy offers the potential of sharing in the success of an insurance company through the receipt of dividends.

Particle Board

Plywood substitute made of course sawdust that is mixed with resin and pressed into sheets. Used for closet shelving, floor underlayment, stair treads, etc.

Partition

A wall that subdivides spaces within any story of a building or room.

Payment Frequency

The choice of making regular mortgage payments every week, every other week, twice a month or monthly.

Plant Shelf

A decorative feature approximately 8 feet above the floor, normally associated with volume ceilings that add high spaces/shelves to use for decorative purposes.

Plot Plan

An overhead view plan that shows the location of the home on the lot. Includes all easements, property lines, set backs, and legal descriptions of the home. Provided by the surveyor.

Prepayment Charge

A fee charged by the lender when the borrower prepays all or part of a closed mortgage more quickly than is set out in the mortgage agreement.

Prepayment Option

The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.

Principal

The amount of money borrowed for a new mortgage.

Private Mortgage Insurance (PMI)

Insurance that protects mortgage lenders against default on loans by providing a way for mortgage companies to recoup the costs of foreclosure. PMI is usually required if the down payment is less than 20 percent of the sale price. Home buyers pay for the coverage in monthly installments. PMI should be terminated when the home buyer has built up 20 percent equity in the property.

Quebec Pension Plan

A plan that primarily provides retirement and long-term disability income benefits for residents of Quebec.

Registered Pension Plan

Commonly referred to as an RPP This is a tax sheltered employee group plan approved by Federal and Provincial governments allowing employees to have deductions made directly from their wages by their employer with a resulting reduction of income taxes at source. These plans are easy to implement but difficult to dissolve should the group have a change of heart. Employer contributions are usually a percentage of the employee's salary, typically from 3% to 5%, with a maximum of the lessor of 20% or $3,500 per annum. The employee has the same right of contribution. Vesting is generally set at 2 years, which means that the employee has right of ownership of both his/her and his/her employers contributions to the plan after 2 years. It also means that all contributions are locked in after 2 years and cannot be cashed in for use by the employee in a low income year. Should the employee change jobs, these funds can only be transferred to the RPP of a new employer or the funds can be transferred to an individual RRSP (or any number of RRSPs) but in either scenario, the funds are locked in and cannot be accessed until at least age 60. The only choices available to access locked in RPP funds after age 60 are the conversion to a Life Income Fund or a Unisex Annuity.
To further define an RPP, Registered Pension plans take two forms; Defined Benefit or Defined Contribution (also known as money purchase plans). The Defined Benefit plan establishes the amount of money in advance that is to be paid out at retirement based usually on number of years of employee service and various formulae involving percentages of average employee earnings. The Defined Benefit plan is subject to constant government scrutiny to make certain that sufficient contributions are being made to provide for the predetermined pension payout. On the other hand, the Defined Contribution plan is considerably easier to manage. The employer simply determines the percentage to be contributed within the prescribed limits. Whatever amount has grown in the employee's reserve by retirement determines how much the pension payout will be by virtue of the amount of LIF or Annuity payout it will purchase.
The most simple group RRSP plan is a group billed RRSP. This means that each employee has his own RRSP plan and the employer deducts the contributions directly from the employee's wages and sends them directly to the RRSP plan administrator. regular RRSP rules apply in that maximum contribution in the current year is the lessor of 18% or $13,500. Generally, to encourage This kind of plan, the employer also agrees to make a regular contribution to the employee's plans, knowing full well that any contributions made immediately belong to the employee. Should the employee change jobs, he/she can take their plan with them and continue making contributions or cash it in and pay tax in the year in which the money is taken into income.

Registered Retirement Savings Plan (Canada)

Commonly referred to as an RRSP, This is a tax sheltered and tax deferred savings plan recognized by the Federal and Provincial tax authorities, whereby deposits are fully tax deductable in the year of deposit and fully taxable in the year of receipt. The ability to defer taxes on RRSP earnings allows one to save much faster than is ordinarily possible. The new rules which apply to RRSP's are that the holder of such a plan must convert it into income by the end of the year in which the holder turns age 69. The choices for conversion are to simply cash it in an pay full tax in the year of receipt, convert it to a RRIF and take a varying stream of income, paying tax on the amount received annually until the income is exhausted, or converting it into an annuity with guaranteed payments for a chosen number of years, again paying tax each year on moneys received.
If you are currently 69 years of age, you may still contribute to your own RRSP until December 31st of This year and realize a tax deduction on This year's income. You must also, however, make provisions before December 31st of the year for converting your RRSP into either a RRIF or an annuity, otherwise, the full balance of your RRSP becomes taxable on January 1 of the following year. If you are older than age 69, still have earned income, and have a younger spouse, you may continue to contribute to a spousal RRSP until that spouse reaches 69 years of age. Contributions would be based on your own contribution level and are deducted from your taxable income.

Renewal

At the end of a mortgage term, the mortgage may "roll over" on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. Otherwise, the lender is entitled to be repaid in full. In This case, the borrower may seek alternative financing.

Roof Valley

The "V" created where two sloping roofs meet.

Spousal Registered Retirement Savings Plan

This is an RRSP owned by the spouse of the person contributing to it. The contributor can direct up to 100% of eligible RRSP deposits into a spousal RRSP each and every year. Contributing to a spouses RRSP reduces the amount one can contribute to one's own RRSP, however, if the spouse is a lower income earner, it is an excellent way in which to split income for lower taxation in retirement years.

Trombe Wall

A passive solar wall, usually masonry or concrete, used for passing heat from one room (like a sun room or solar garden room) to another.

Variable Rate Mortgage

A mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage.

Walk Through

A final inspection of a home before "closing" to look for and document problems that need to be corrected.

Wall Out

When a painter spray paints the interior of a home.

Yearly Renewable Term Insurance

Sometimes, simply called YRT, This is a form of term life insurance that may be renewed annually without evidence of insurability to a stated age.

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