When I open a CD or look for mortage rates, they always list the interest rate and the APR and most times the numbers vary a little.
2006-12-05 08:11:03 · 3 answers · asked by yasin04111 1 in Business & Finance ➔ Personal Finance
The rate and APY vary slightly, because of compounding. If you are being paid 10% interest annually on $500, you'd earn $50, right? Only if you are paid the interest at the end of the year.
If you compound it monthly, however, you'd end up with $52.36 in interest, for an effective APY of 10.472.
They are required to disclose this stuff, so that if they are telling you 5% APY, you are really getting a 4.8% rate that with compounding gets you an effective 5.0%.
2006-12-05 09:01:46 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Annual Percentage Yield (APY) expresses an annual rate of interest taking into account the effect of compounding, usually for deposit or investment products (such as a certificate of deposit). It is analogous to the Annual percentage rate (APR), which is used for loans. Interest rate refers to the rate paid without any compounding. That's why the APY is always higher. It reflects the compounding.
2016-05-22 21:57:21 · answer #2 · answered by ? 4 · 0⤊ 0⤋
Yes the interest rate is the rate of interest charged just on the loan amount. Your APR is the amount of interest charged on the full balance of everything (loan amount + closing costs) so it does increase the rate slightly. Not too much of a difference and honestly it will not affect the perameters of the loan a whole lot. If you have any other questions feel free to email me, I have been a loan officer for 4+ years....
sstewart@pmflenders.com
2006-12-05 09:55:59 · answer #3 · answered by shanstew 3 · 0⤊ 0⤋