When properly managed, borrowing money offers the potential to open up new opportunities to live a better, fuller life, and keeping up with or getting ahead on your payments will help you take advantage of those opportunities, while paying as little interest as possible.
Need an expert opinion on interest, managing debt, or to create a financial plan? Find an advisor today to help take control of your financial future. This article is for information purposes only and is not intended to provide specific tax or other advice and should not be relied upon in that regard.
Individuals should seek the advice of qualified professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. In part two of our three-part series on financial literacy, we want to help break down some common questions about home ownership. The process of buying a home is easier when you understand what it all means.
These clear definitions of common mortgage terms will help you learn the lingo. Buying a new home or property? Or, maybe your mortgage is up for renewal soon? Either way, you should understand your options. Interest rates how interest works, and why it matters to you. Before diving into the specifics of how interest works in different situations, let's start with some basic terminology that will help you understand how interest affects your life: Principal : the base amount of money that you're either borrowing or investing.
Term: the length of your loan or investment. There are two types of interest: simple and compound: Simple interest : simple interest is charged only on the original principal amount. Again, there are different ways of calculating the APR, which impacts the actual interest rate: Nominal interest rate : this is the most basic type of interest rate.
Types of debt and interest. Here's an overview of the most popular types of loans, and how interest affects each of them. Credit cards. Line of credit LOC. Monthly payments with a fixed interest rate Year Fixed interest rate Monthly payments 1 2. Monthly payments with a variable interest rate Year Variable interest rate Monthly payments 1 2. Run the numbers before you buy. There are also two different mortgage types, open and closed mortgages: Open mortgages: Increase your regular payments by any amount, at any time Make lump-sum payments of any amount, at any time including the full balance of your mortgage!
Financial literacy home ownership In part two of our three-part series on financial literacy, we want to help break down some common questions about home ownership. Published September 14, Updated September 14, Hannah Logan. What is an interest rate? What is a prime rate? What is the prime interest rate in Canada?
Types of products with interest rates Many financial products in Canada have interest rates applied, including the following: Mortgages Auto loans Personal loans Student loans Credit cards Savings and some chequing bank accounts Investment products, like guaranteed investment certificates GICs Tax-Free Savings Accounts TFSAs Registered Retirement Savings Plans RRSPs These products may also have fixed or variable options, but, regardless, a change in the prime rate will eventually impact the interest rates on these products.
What makes an interest rate good or bad? FAQs How often does the prime rate change? Other than the prime rate, what else affects interest rates? What is an interest rate vs. How often does the prime rate change? About the Author. Learn how to calculate and compare different types of interest rates. Barry Choi. How Does Mortgage Interest Work? Mortgage interest is the fee you pay a lender to use their money. Your credit cards, auto loans, personal loans and mortgages all have unique factors that are used to determine your interest rate.
An Annual Performance Rate, or APR, is another rate you may encounter when taking out a personal loan, mortgage loan, auto loan or credit card.
This rate is the amount of interest you will pay over the course of a year, including any extra fees your loan process may incur. T he APR will typically be. If the APR is higher, expect to have more fees.
Many borrowers compare APRs when deciding between different loan options. These rates are valuable negotiating tools — it is not uncommon to reference the rate of a competing lender in order to secure the best rate available. Over the past 40 years, the average mortgage rate, or interest rate on a mortgage loan has fluctuated between 3.
Be sure to consider:. Some of these costs may be included in the APR. Make sure that you inquire about what is covered before making a side-by-side comparison. Unlike auto and home loans, banks and lenders have no collateral to collect in the event that a borrower defaults or stops making payments on their credit card. As a result, credit cards will have a higher interest rate than other loan types to offset overall losses.
Credit card balances are limited. If you handle them correctly, you can avoid paying significant amounts of interest. When you apply for a car loan, the car is used as collateral. Most lenders will require you to have auto insurance to protect the collateral while the loan is being repaid.
If you miss any payments, the bank can repossess the car to cover the costs of the loan. You may have heard about payday loans and their unreasonably high interest rates.
But how can these loans have rates that are so high? A payday loan is a small, short-term loan used when money is needed immediately. Borrowers are expected to repay the loan when they receive their next paycheck. To encourage quick repayments, lenders will often use extremely high interest rates as service fees.
Unlike credit cards and mortgages, this fee is not repaid over the course of a year. Move the decimal point to the right two places to get your APR.
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