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Common financial terms



The amount of time it takes to pay off a loan in full. Typically used when discussing mortgages.

Annual Percentage Rate (APR)

The effective interest rate paid for borrowing money. It includes all finance charges and the total amount financed.


A resource of value that an individual or company owns. Common personal assets are: property, bank accounts, and investment accounts.

Bank Rate

The rate of interest charged by the Bank of Canada to chartered banks on loans made to the chartered banks.


Bonds are typically issued by corporations or governments as a way of raising capital (money). For example, if a company wants to raise money, they can issue equity (shares) or debt (bonds). When a company issues (sells) bonds, they are making a promise to make interest payments to the bondholders (those who purchased the bonds) at set intervals. At some future point the issuing company will also have to pay back the principal amount to the bondholder.

Bull Market

This is an expression used by those in the financial world to express a time frame where a market (and typically the economy) performs well.

Closed Mortgage

A type of mortgage with limits on the amount the borrower is able to prepay without penalty. Closed mortgages can be fixed or variable.

Credit Score

A credit score is a number that falls between 300 and 900. It is used by lenders to determine whether or not someone can afford to repay money that is lent to them.


A cryptocurrency is a digital or virtual currency that uses cryptography encryption techniques for security. Cryptocurrencies aren't regulated or controlled by governments. Most cryptocurrencies run on decentralized blockchain systems.

Defined Benefit Pension Plan (DBPP)

An employer pension plan where the individual employee knows what income (the defined benefit) to expect in retirement. The benefit payout is usually derived from a formula that factors in years of service and earnings. The employer is responsible for managing the investments and making sure there is sufficient funds to pay the benefit as promised.

Defined Contribution Pension Plan (DCPP)

An employer plan where the employee and employer typically contribute a set percentage of the individual's salary. You know how much you are putting in (defined contribution), but not how much you will be able to take out. Growth of assets within this plan depend on how much you contribute and the performance of the invested assets within the account. Most DCPP providers often gives the employee some choice on what sort of investments (typically mutual funds) they want to hold in the account.


A debt is an obligation to repay an amount owed to an individual, company, or government. A company usually issues debt in the form of a bond.

Debt to Income Ratio (DTI)

Compares the amount owed to the amount of income earned, expressed as a percentage. To calculate DTI, divide total monthly debts by monthly income before taxes or deductions.

Exchange-Traded Fund (ETF)

It is a tradable security (investment) that typically tracks a specified stock index, commodity price, or bond class. ETFs can be purchased on normal stock exchanges. ETFs make it easy for average investors to diversify their portfolios.

Fixed Rate

An interest rate that doesn't change over the duration of a loan.


A third-party individual who guarantees that they will assume lease payments in the event that the lessee can’t.

Gross Pay

The amount earned in a pay period before any deductions or taxes are withheld.

Home Equity Line of Credit (HELOC)

A revolving line of credit secured by the equity of a home. Usually this interest rate is lower than a normal line of credit. The mortgage balance + HELOC can't be more than 80% of the value of the home.

Initial Public Offering (IPO)

A company’s first sale of shares to the public. Typically these shares will be listed on a regulated stock exchange like the TSX.


Interest is the additional fee that is owed to a lender in return for borrowing the lender's money.

Joint Account

An account where two or more individuals have the ability to deposit or withdraw funds. A joint account is common between partners who want to consolidate their finances. Typically registered accounts can only have one individual owner, where as non-registered bank accounts can be joint accounts.

Know Your Client Rule (KYC)

Regulation that stipulates that investment advisors and portfolio managers have to understand their client's investment objectives and risk tolerance.


Also called a creditor, an individual, organization or business that extends funds in the form of a loan (credit).


Use of borrowed money to purchase more of an asset (stock, real-estate, etc...) than would be normally possible. For example, when an individual borrows money in the form of a mortgage, the concept of leverage is at play. If a house costs $500,000 with a $100,000 downpayment and $400,000 borrowed, that structure is levered. If the house value goes up to $700,000 and is sold, the seller has made a profit of $200,000 on top of their initial $100,000 investment.

Line of Credit

A revolving loan where a lender can extend credit up to a certain limit whenever funds are required by the borrower.

Management Expense Ratio (MER)

The total cost of operating a mutual or exchange-traded fund as a percentage of total assets. A high MER can negatively impact an investor's performance.

No-Load Fund

A type of mutual fund that doesn't charge the investor a fee for buying or selling shares of the fund.

Open Mortgage

Type of mortgage that allows the borrower to repay the amount owed more quickly if the borrower wants to make pre-payments. Typically the open mortgages have higher interest rates than comparable closed mortgages for this early payment option.


In the financial world, an option is an instrument that gives the option holder the right to buy (call option) or sell (put option) a security at a certain price.

Prime Rate

A prime rate or prime lending rate is an interest rate used by banks, usually the interest rate at which banks lend to favoured customers.


In reference to a loan or debt, principal is the dollar amount that is borrowed or the amount still owed on a loan.

Registered Retirement Income Fund (RRIF)

A financial account that provides income in retirement. Typically RRSPs will convert to a RRIF. There are minimum RRIF withdrawal amounts.

Registered Retirement Savings Plan (RRSP)

A savings account that allows individuals to save for their retirement while gaining some income tax benefits. Earnings generated within a RRSP are not taxed, however withdraws from a RRSP are considered taxable income.

Savings Account

An account with a bank, credit union or other financial institution in which one can deposit money for future use and typically earn interest on it.

Secured Loan

A loan that protects the lender from default through collateral, such as the borrower’s home or car. If the borrower defaults, the lender can take possession of the collateral to recover the loan amount.

Total Debt Service Ratio (TDSR)

The TDSR determines how much someone can afford to pay every month if they own a property. It takes into account other debt obligations. To calculate, add monthly mortgage payments, property taxes, utilities, and other minimum debt payments divided by gross monthly income. Typically a ratio below 40% means that a lender will approve the mortgage.

Term Life Insurance

Term life insurance is offered to a policyholder and provides a fixed amount of insurance (death benefit) during a specified term. Typical terms are 10, 20, or 30 year terms.

Unsecured Loan

A loan that does not require collateral. An unsecured loan can come with a higher APR, as collateral can minimize risk for the lender.

Variable Rate

An interest rate that can change over the duration of the loan. For mortgages, this is often tied to the lender's prime rate.

Write Off

In accounting terms, an expense or loss that can be deducted from taxable personal or business income.


A specific investment's rate of return over a selected time frame.

Reading List

These are some of our favourite personal finance books

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