Mortgage Glossary of Terms & Definitions
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Bad (Non-deductible) Debt
Bad Debt is any liability that you carry for making a consumer purchase. The interest charged is not Tax Deductible and therefore is considered "Bad" Debt.
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Cash Damming
Cash Damming is a term Canada Revenue Agency (CRA) first defined in an Interpretation Bulletin IT-533, published on October 31, 2003 to help individual Taxpayers determine under what circumstances interest would be tax deductible. Paragraph 16 of ITC-533 introduces Cash Damming as:
“Taxpayers may segregate (typically in separate accounts) funds received from borrowed money and funds received from other sources (e.g., funds received from operations or other sources and that are otherwise not linked to money previously borrowed). This technique, commonly referred to as cash damming, readily allows taxpayers to trace borrowed money to specific uses.”
Cash Flow Portfolio
To optimize the benefits with TDMP, it is necessary to apply additional pre-payments to the regular mortgage every month. These pre-payments can come from investment distributions; a real estate rental portfolio and personal business expenses if you are self-employed and unincorporated.
Your TDMP Certified Advisors will recommend the best combination of cash flow generating investments to include in your Portfolio depending on your current circumstances.
Conventional Mortgage
A mortgage up to 80% of the purchase price or the value of the property. A mortgage exceeding 80% is referred to as a “Hi-Ratio” mortgage and the lender will require insurance for that mortgage.
Credit Scoring
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness.
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Demand Loan
A loan where the balance must be repaid upon request. Depending on the lender, secured Lines of Credit may be registered as demand loans and/or have a separately registered mortgage charge.
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Equity
The difference between the market value of the property and any outstanding mortgages and secured Line of Credit outstanding balances registered against the property. This difference or owner's equity belongs to the owner of that property.
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First Mortgage
A debt registered against a property that has first call on that property.
Fixed-Rate Mortgage
A mortgage for which the interest is set for the term of the mortgage.
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Good Debt
Any money that you borrow to generate income. Funds can be used to purchase assets that have the capability to pay an income. The interest charged to the loan is Tax Deductible and can be used to reduce your taxable income.
The TDMP Investment Line of Credit is considered to be Good Debt.
Gross Debt Service Ratio (GDS)
It is one of the mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32 % are acceptable.
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ILOC
Investment Line of Credit. The interest charged to this portion of your TDMP Mortgage is considered Tax Deductible.
Interest Adjustment Date (IAD)
The date on which the mortgage term will begin. This date is usually the first day of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month.
Interest-Only Mortgage
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since once is not paying any principal.
Interest-Only mortgages are a good financing option for investment/rental property mortgages if the owner also carries mortgage debt on their principal residence.
Investment PAC
PAC stands for Pre-Authorized Contribution. Under TDMP this is the term used to describe the money that is invested into the Wealth Portfolio every month.
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Mortgage
A mortgage is a loan that uses a piece of real estate as a security. Once that loan is paid-off, the lender provides a discharge for that mortgage.
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Open Mortgage
A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.
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Portable Mortgage
An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.
Prepayment Penalty
A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.
Prime
The lowest rate a financial institution charges its best customers.
Principal
The original amount of a loan, before interest.
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Rate Commitment
The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.
Renewal
When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with same lender or transfer to another lender at no cost (we can arrange).
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Tax Clearing Account
The Tax Clearing Account is a dedicated bank account for TDMP Cash Flows. This account is used only for TDMP Transactions creating an audit trail for CRA.
Term
The period of time the financing agreement covers. The terms available are: 6 month, 1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term once chooses.
Total Debt Service (TDS) Ratio
It is the other mathematical calculations used by lenders to determine a borrower’s capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40 % are acceptable.
TTAPP
TTAPP stands for TDMP Tax Audit Protection Plan - a 100% Guarantee that your tax refunds are protected with TDMP. In the event of an audit, simply hand the file over to us and we will fight the taxman on your behalf!
No other company offers this type of protection.
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Variable Rate Mortgage
A mortgage for which the interest rate fluctuates based on changes in prime.
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Wealth Portfolio
This is the investment portfolio that is used to build wealth with TDMP. Any funds that are not used to service deductible interest on the investment loans & the TDMP Cash Management Fee are invested into the Wealth Portfolio and must be used to purchase a qualifying investment that meets CRA guidelines to deduct interest.
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