Effective Rate
The interest rate adjusted for intra-year compounding. Because interest on a mortgage is calculated monthly, a 6% mortgage actually has a rate of .5% per month. If there were no principal repayments the first year, $100 invested in a 6% mortgage would actually earn $6.17 of interest during the year because of reinvestment of monthly interest. The 'effective rate' is thus 6.17%, while 6% is termed the 'nominal' rate. Similarly, a 6% bond on which interest is paid quarterly has an effective rate of 6.14%.
Popular Mortgage Terms
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The period over which the borrower is obliged to make payments. On most mortgages, the payment period is a month but on some it is biweekly. It is not necessarily the same as the Interest ...
The initial interest rate on an ARM, when it is below the fully indexed rate. ...
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