# Compound Interest

Definition

- Interest that is determined by adding the interest earned in the current period to the principal and computing the next period's interest on this "compounded" total amount.

**Synonyms**

multiplying, building upon itself, growing interest

## Related Terms and Acronyms

- Accrue — Definition,
- To gather together an amount often over a period of time.

- Add-on Interest — Definition,
- Interest that is computed at the beginning of the loan, then added to the principal, so that all must be repaid, even if the loan is paid off early.

- Amortization — Definition,
- Amortization refers to the process of gradually paying down the principal of a loan. Each payment toward the principal reduces your loan by that amount. This is different than an interest-only loan payment where the principal balance is never reduced. Amortization for a mortgage loan in Canada is normally 25 years, but can be as few as 5 years.

- Annual Percentage Rate (APR) — Acronym,
**Very Important**,- A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing. There is no APR in an automobile lease; instead, the cost of money is expressed as the money factor.

➥ A number used to compare costs associated with mortgage loans and other forms of financing. - Annual Percentage Yield (APY) — Acronym,
- The percentage, required by Truth in Savings regulations, to be disclosed on interest-bearing deposit accounts that reflects the total interest to be earned based on an institution's compounding method, assuming funds remain in the account for a 365-day year.

- Interest (int, IN) — Acronym & Abbreviation,
- Money paid for the use of borrowed funds, usually expressed as an annual percentage.

➥ Bank account transaction code. - Interest Rate (IR) — Acronym,
**Very Important**,- The rate a lender charges an individual to borrow money.

- Mortgage Calculator — Definition,
**Very Important**,- A program that calculates the costs involved in a mortgage or determines what kind of mortgage a person can qualify for.

➥ CanEquity's mortgage calculator has been rated number one by the Globe and Mail. - Per Diem Interest — Definition,
- Interest that is charged daily; usually refers to the partial month's interest that the buyer pays on the mortgage covering the period from the day of closing to the end of the month.

- Rests — Definition,
- The periodical balancing of an account for the purpose of converting interest into principal, and charging the party liable thereon with compound interest.

- Simple Interest (SI) — Acronym,
**Important**,- Interest computed only on the principal balance, without compounding.

- Simple Interest Loan — Definition,
- A method of allocating the monthly payment between interest and principal. The interest charged is determined by the unpaid principal balance on the loan, the interest rate, and the number of days since the last payment. The rest of the payment goes to the principal. Making early payments or additional payments reduces the loan's principal and cuts the total interest paid over the life of the loan.