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Glossary - I
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Mortgage Brokers Glossary - I
- Index:
- A measurement used by lenders to find out changes to the Interest rate charged on an adjustable rate mortgage.
- Inflation:
- The amount of dollars in circulation exceeds the amount of goods plus services available for purchase; inflation results in a drop off in the dollar's value.
- Interest:
- A cost charged for the use of money.
- Interest Rate:
- The sum of interest charged on a monthly loan payment; normally expressed as a percentage.
- Interest Rate Differential:
- A penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. This is usually calculated as "the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term".
Example:
- $100,000 mortgage at 9% with 24 months remaining.
- Current 2 year rate is 6.5%.
- Differential is 2.5% per annum.
- IRD is $100,000 * 2 years * 2.5% p.a. = $5,000.
- Insurance:
- Protection against a particular loss over a period of time that is secured by the payment of a on a regular basis scheduled premium.
