Refinance Mortgage Interest Rate Resources

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When money is loaned the lender defers consumption (or other use of the money) for a specific period of time. The lender does this in exchange for an expected increase in future income. The expected increase in interest payments (relative to the amount loaned) is the '''nominal interest rate''', and can be defined as the face value of money received by the lender, or paid by the borrower. For example, suppose a household deposits $100 with a bank for 1 year and receives interest payments totalling $10. In this case, the nominal interest rate is 10% per annum. The real interest rate, which measures the purchasing power of interest receipts, is calculated by adjusting the actual rate charged (known as the money or '''nominal interest rate''') to take inflation into account. (See real vs. nominal in economics.) A first approximation for the real interest rate for a one-year loan is:
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Last Updated August 11, 2005