Actuarial. The Actuarial Adjustment is the anticipated earnings on principal payments received. Currently the actuarial is estimated at between 3-3.75% depending on the borrowing term selected. An actuarial is first recognized 1 year after the receipt of the first principal payment on the loan and then recognized annually thereafter until expiry of the loan. It acts to reduce the outstanding loan obligation and as such members may write down the balance of their loan annually by this amount. Over the life of the loan the sum of the principal payments required and the actuarial will equal the gross amount of the loan.

The MFA reviews the adequacy of the actuarial rate assumptions annually. If it is determined that the assumption requires revision, changes (i.e. increases in principal repayments on loans) will be applied prospectively. MFA will endeavour to notify members one year in advance of require assumption changes and hopefully restrict any such changes to an issue’s rate reset dates.

When analysing the cost of borrowing, remember to account for the actuarial rate in conjunction with the stated relending rate. 

Amortizing Loan. A loan where the principal of the loan is paid down over the life of the loan. MFA long-term loans follow this amortizing methodology whereby an equal annual repayment of principal is required over the life of the loan. The Community Charter specifies that the amortization period of long-term loans may range from 5 to 30 years.

Debt Reserve Fund. The Debt Reserve Fund or DRF is security held in trust by the MFA as protection against loan default. At the commencement of each loan, 1% of the gross amount is deducted and retained until the loan has expired. The MFA earns interest on this cash position and reports annually to members, via the Debt Position Reports, on the status of this holding due back to each borrower. Also, logged as security alongside this 1% cash position is a Demand Note payable to the MFA. To determine the value of the Demand Note, first calculate ½ the average annual principal and interest due, deduct 1% from that for the cash position and the balance will be the Demand Note. The Demand Note is considered a contingent liability and should be accounted for as such.

The DRF is vitally important to the MFA and its members as it directly impacts relending rates. The ratings agencies (Moodys, Fitch, and S&P) rely heavily on this DRF in determining the credit worthiness of the MFA. The higher the credit rating the lower the rates the MFA can pass on to its members.

Index. A benchmark against which financial or economic performance is measured. An index whose purpose is to reveal the performance of the entire market is called a broad based index such as the S&P 500 or the AMEX Major Market Index. The S&P 500 is a market-value weighted index of 500 blue-chip stocks, considered to be a benchmark of the overall stock market. This index is composed of industrial, transportation, utility, and financial companies with a heavy emphasis on industrial companies.

Members of the Authority. The number of MFA Members appointed by each Regional District board is based on population of the Regional District. Currently, there are 28 Regional Districts and 39 Members of the Authority. Capital Regional District and Fraser Valley Regional District having two appointments, Metro Vancouver Regional District with nine appointments and remaining Regional Districts with one. The Members of the Authority elect a Chair and an Acting-Chair each year at the AGM.

MFA Board of Trustees. The Members elect the Board of Trustees annually from amongst themselves at the MFA Annual General Meeting (AGM) held in March. The Board of Trustees is composed of a chair and nine trustees: four must be from the Metro Vancouver Regional District, one from the Capital Regional District and the other five from the remaining regional districts. The Chair of the Members is the Chair of the Trustees.

Sinking Fund. A fund established for the purposes of reducing or retiring debt. The sinking funds of the MFA are assets held in trust for the retirement of MFA debt.

Yield Curve. A graph depicting the term structure of interest rates on which the average yields of bonds of like quality, with maturities ranging from short-term to long-term, are plotted. The curve indicates whether short-term rates are higher or lower than long-term rates, and whether there are imbalances in the supply and demand for money and capital over the time horizon plotted. When short-term rates are lower, the yield curve is positive. When the short-term rates are higher, it is called a negative curve. When the curve is straight, the yield curve is called flat.

Bank of Canada Financial Term Glossary

Tools / Resources

Find amortization schedules and historical rates.

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Credit Reports

Every year the MFA presents to 3 credit rating agencies to access the lowest rate possible for our clients.  Here are their findings.

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