Loans and Lines of Credit Glossary

A 

Amortization period (Lending)

The period of time it will take to fully pay off the principal amount of a loan. This should not be confused with the term of the loan, which is usually shorter.

Appraisal (Lending)

The market value assessment or valuation of the property. The appraisal is also an indication to the lender as to whether or not the property is suitable for secured lending purposes.

B

Bridging/Bridge Loan

When you require the proceeds from your currently owned home to buy a new residence but the sale of your home occurs after the closing of your new residence, a bridge loan allows you to borrow funds to cover your needs until the sale of your existing home closes.

C

Co-borrower

A secondary borrower on the loan or line of credit, in which, this person receives a direct benefit from the loan proceeds. In addition, this person is fully liable for the loan.

Any additional borrower(s) whose name(s) appear on loan or line of credit documents and whose income and are used to qualify for the loan or line of credit. Under this arrangement, all parties involved have an obligation to repay the loan or line of credit.

Creditor Insurance (Lending)

Insurance that pays certain debts of a borrower if certain events happen. For example, creditor life insurance pays off the borrower’s loan or line of credit if the borrower dies. Creditor disability insurance makes loan payments on the borrower’s behalf if the borrower becomes disabled.

D

Demand Loan

Repayment in full of a demand loan can be called in by the lender at any time and is repayable early at the option of the borrower.

E

Education line of credit

A line of credit used for education expenses for a variety of post-secondary programs. Only the interest portion of the outstanding balance must be repaid on a monthly basis until 1 year of graduation or 6 months of leaving school.

F

Fixed rate loan

A loan where the interest rate and payment amount do not change during the term.

G

Gross Debt-Service Ratio

The percentage of a borrower’s gross income (before deductions such as income tax) required to cover the monthly costs associated with a home, such as mortgage payments, property taxes and heating.

Gross Household Income (Lending)

This amount is the total salary, wages, commissions and other assured income, before deductions, by all household members who are co-applicants for the loan or line of credit.

Guarantor

A person on the loan or line of credit who guarantees payment on behalf of the borrower in the event that that the borrower is unable to make the payments. The guarantor does not receive any direct benefit from the loan proceeds.

H

Home equity (Lending)

The current market value of a home, minus the amount of any debts registered on the property, such as liens or mortgages. It is essentially the amount of ownership that has been built by the owner through mortgage payments and appreciation of their home.

For example, if the market value of a property is $250,000 and the mortgages on the property total $200,000, the owner’s home equity is $50,000 ($250,000 - $200,000 = $50,000).

Home equity line of credit

A secured line of credit borrowed against the equity in your home. Funds are borrowed once, but can be accessed any time, up to the limit specified. The credit limit is usually larger than other forms of unsecured borrowing.

I

Installment loan

A loan that is repayable either in fixed instalments of principal, plus interest, or in blended instalments of both principal and interest.

Interest

A charge for money borrowed generally stated as a percentage of the amount borrowed.

Interest (Lending)

The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal.

Interest-only

Payments made by the borrower on the loan that only go towards interest that is accrued on the loan. No payments are made to the principal.

J

K

L

Line of Credit

A Personal Line of Credit (PLC) gives you convenient ongoing access to funds up to your authorized credit limit. Interest is accrued only on the funds you use, not your total credit limit. A line of credit may be unsecured or secured with collateral such as real estate, other property or investments.

M

Maturity date (Lending)

The date a loan term ends. On the maturity date, the loan must either be paid off or renewed into a new term.

Minimum payment

This is the minimum monthly payment required (a mix of both principal and interest) to keep your line of credit in good standing. For personal lines of credit at CIBC, the minimum payment is either 3% of the outstanding balance or $60 - whichever is greater. However, in certain instances, you can have interest-only payments where only the interest portion of the outstanding balance is payable.

N

O

P

Prime rate (Lending)

The prime rate is the interest rate that a lender publicly announces as its reference rate for certain variable interest rate loans and lines of credit. The prime rate can change at any time.

For example, CIBC variable interest rate on loans and lines of credit is based on the CIBC Prime Rate. This means the interest rate on these types of loans and lines of credit will change whenever the CIBC Prime Rate changes.

Principal

The amount owing on a loan. Interest is calculated on the principal.

Q

R

Renewal or renewing (Lending)

Extending the term of your loan when it matures. Often the interest rate and other terms of the loan offered for the renewal are different from the interest rate and terms of your original lending agreement.

RRSP loan

A loan designed to help you maximize your RRSP contributions, including any unused contribution room.

S

Secured Loan

A loan may be fully or partially secured by real estate or other property or investments which have a realizable value at least equivalent to the amount of the loan taken.

Security (Lending)

Property, either real estate or an investment product, pledged as collateral for a loan or line of credit to help the borrower obtain a lower interest rate and a higher borrowing limit from the lender.

T

Term (Lending)

The period of time your borrowing agreement is in effect. A loan term is usually between 6 months and 5 years long.

Not to be confused with amortization period. For example, a secured loan could have a term of 5 years and an amortization period of 25 years.

Total Debt Service (TDS) Ratio

The percentage of gross income needed to cover monthly payments for housing and other debts and financing obligations.

U

V

Variable rate loan

A loan with an interest rate that can vary during the term, in accordance with changes in market interest rates. For example, the interest rates for most CIBC variable rate products change whenever CIBC’s prime rate changes.

W

XYZ