# Interest Rate

Definition

- The rate at which interest is applied to the money borrowed from a lender. Interest rates are expressed as a percentage of principal, most commonly on an annual basis, which is known as the annual percentage rate (APR). As a general rule of thumb, the higher the risk the investment poses, the higher the interest rate the borrower will pay. The inverse is equally true.

**Synonyms**

lending rate, percentage rate

**Acronyms**

IR

## Related Terms and Acronyms

- 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.

- Amortized Loan — Definition,
- A loan that is completely paid off, interest and principal, by a series of regular payments that are equal or nearly equal.

- 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. - Bank — Definition,
- An institution that acts as a financial intermediary by receiving money from depositors and lenders and also lending to borrowers.

- Bank Spread — Definition,
- The difference between the interest rate a bank charges a borrower and the interest rate a bank pays a depositor.

- Compound Interest — Definition,
- Interest that is calculated by adding the interest earned in the current period to the principal and figuring the next period's interest on this "compounded" total amount.

- Disclosure — Definition,
- A statement listing potential defects to a property, such as the possible existence of lead paint or radon.
- A statement required by most provinces that requires the creditor to tell the debtor the annual percentage rate, finance charges and other terms of a loan.

- Finance Charge — Definition,
- Charges that include all of the interest expected to be earned over the life of a loan, in addition to the service charges, mortgage insurance premiums, and other loan-related charges.

- Fixed Rate Mortgage (FRM) — Acronym,
**Very Important**,- A loan in which the interest rate and payments remain the same for the entire life of the loan. The interest rate and payment amounts are set at the time of loan origination.

- Fixed-Return Investments — Definition,
- Investments that provide a stable return.

- Index — Definition,
- A table of yields or interest rates being paid on debt (such as Treasury notes or bank deposits) that is used to determine interest-rate changes.

- Initial Interest Rate — Definition,
- The introductory interest rate on an adjustable-rate mortgage (ARM), which usually changes at a predetermined time.

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

➥ Bank account transaction code. - Interest Adjustment Date — Definition,
- The date one month prior to the beginning of amortization when accrued interest computed on the monies advanced becomes due.

- Interest Factor — Definition,
- The decimal equivalent for an interest rate on a unit amount for a period of time. Computed by interest rate divided by number of days in a basic year times the number of days accrued.

- Interest Only Payments — Definition,
- A payment plan where only the interest is paid off.

- Interest Rate Cap — Definition,
- A limit to the interest rate increases and decreases on an adjustable rate loan; either from one adjustment period to the next or over the life of the loan.

- Interest Rate Differential (IRD) — Acronym,
**Very Important**,- The penalty one pays for breaking a mortgage.

- Interest Rate Swap (IRS) — Acronym,
- Interest-Crediting Methods — Definition,
- A number of methods used to establish how interest is accrued, owed and dispersed to the parties due.

- Lender — Definition,
- The bank or mortgage company offering the loan.

- Loan — Definition,
- Letting another party use something of value temporarily.

- Money Factor — Definition,
- A leasing term that expresses the cost of borrowing. It is similar to the interest rate paid on a conventional car loan, but it is expressed as a difficult-to-understand fraction. To convert the money factor to a recognizable interest rate, multiply it by 24. For example, a money factor of .00345 x 24 = 9 percent interest. The money factor is negotiable, and consumers who lease a new car should look for a money factor close to the current interest rate charged for new-car loans.

- Mortgage (mtg) — Abbreviation,
**Important**,- A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.

- 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. - Mortgage Rate — Definition,
**Very Important**,- The interest rate on a mortgage loan.

➥ You can compare mortgage rates using this website by clicking 'Rates' above. - One-year Adjustable — Definition,
- Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.

- Original Principal Balance — Definition,
- The amount borrowed.

- Origination Date — Definition,
- The date on which a loan is funded.

- Origination Fee — Definition,
- The fee a lender charges to process a loan. It usually includes the cost to prepare loan documents, check a borrower's credit history, inspect the property and sometimes conduct an appraisal. CanEquity will in most cases use a lender who doesn't charge this fee or we will cover the cost in full.

- 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.

- Periodic Rate — Definition,
- The interest rate in relation to a specific amount of time. For example, the monthly periodic rate is the cost of credit per month whereas the daily periodic rate is the cost of credit per day.

- Periodic Rate Cap — Definition,
- In an adjustable-rate mortgage (ARM), it limits how much an interest rate can increase or decrease from one adjustment period to the next.

- Point — Definition,
- A point equals 1 percent of a mortgage loan. Some lenders charge "origination points" to cover expenses of making a loan. Some borrowers pay "discount points" to reduce the loan's interest rate.

- Pre-computed Loan — Definition,
- With a pre-computed loan, the interest owed over the life of the loan is calculated using a standard amortization table. After signing for this type of vehicle loan, the borrower is obligated to pay back principal plus the full amount of interest that will accrue over the entire term of the loan.

- Pre-paid Interest — Definition,
- Interest that a borrower pays before it is due, usually to save taxes.

- Prime Lending Rate (PLR) — Acronym,
**Very Important**,- The rate of interest charged on loans by chartered banks to their most creditworthy customers.

➥ Bank of Canada's prime (best) lending rate. - Prime Rate — Definition,
- The rate suggested by the Bank of Canada on which most banks base their prime mortgage lending rate.

- Principal — Definition,
- The original balance of money lent on an outstanding loan and fees, excluding interest. Also the remaining balance of a loan, excluding interest.

- Private Lender — Definition,
- A lender not associated with a traditional lender.

- Qualifying Rate — Definition,
- The mortgage rate that one must qualify for when applying for a variable rate or a term less than 5 years, so that if rates increase, the borrower can continue to make payments.

- Rate — Definition,
- Percentage a borrower pays for the use of money, usually expressed as an annual percentage.

- Rate Hold — Definition,
- The length of time, typically between 60 and 120 days, that a lender will guarantee a loan's interest rate once you are locked in.

- Roll In Loans — Definition,
- A refinancing loan that rolls any closing costs or fees into the loan. These programs best serve people who have a reasonable amount of home equity, want to reduce their overall interest expense, and plan to stay in their homes.

- Shared-Appreciation Mortgage (SAM) — Acronym,
- A mortgage loan where the lender or a third-party backer agrees to offer a highly reduced mortgage rate to the borrower in exchange of sharing profits when the property is sold.
- A home loan in which the lender offers a below-market interest rate in exchange for sharing in the profit when the home is sold. Usually done only with private funds/lenders.

- 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.

- Spread — Definition,
- The difference between the interest rate charged to borrowers and the interest rate paid to depositors.

- Step-rate Mortgage — Definition,
**Important**,- A fixed-rate home loan on which payments are lower at the beginning, typically for two years, and which then rise.

- Variable Rate Mortgage (VRM) — Acronym,
**Very Important**,- Home loan in which the interest rate is changed periodically based on a standard financial index. Also called an "Adjustable-rate Mortgage."

➥ A type of mortgage loan offered by brokers and lenders.