GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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Compounding Method


Synonyms:compound method, compounding type
Filed Under: financial-banking, investments, mortgages
Tags: banking, investment, mortgage
 

Definition of compounding method

compounding method
1. Used in Bank rate tables. These include: S--Simple interest. A--Compounded annually. H--Compounded semi-annually. Q--Compounded quarterly. M--Compounded monthly. D--Compounded daily.

Related Terms and Acronyms:

  • accrue   To gather together an amount often over a period of time.
  • annual percentage rate (APR)   A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing. There is no APR in an automobile lease; instead, the cost of money is expressed as the money factor.
      ➥  A number used to compare costs associated with mortgage loans and other forms of financing.
  • annual percentage yield (APY)   The percentage, required by Truth in Savings regulations, to be disclosed on interest-bearing deposit accounts that reflects the total interest to be earned based on an institution's compounding method, assuming funds remain in the account for a 365-day year.
  • interest factor   The decimal equivalent for an interest rate on a unit amount for a period of time. Computed by interest rate divided by number of days in a basic year times the number of days accrued.
  • mortgage calculator   A program that calculates the costs involved in a mortgage or determines what kind of mortgage a person can qualify for.
      ➥  CanEquity's mortgage calculator has been rated number one by the Globe and Mail.
  • per diem interest   Interest that is charged daily; usually refers to the partial month's interest that the buyer pays on the mortgage covering the period from the day of closing to the end of the month.
  • periodic rate   The interest rate in relation to a specific amount of time. For example, the monthly periodic rate is the cost of credit per month whereas the daily periodic rate is the cost of credit per day.
  • simple interest (SI)   Interest computed only on the principal balance, without compounding.
  • simple interest loan   A method of allocating the monthly payment between interest and principal. The interest charged is determined by the unpaid principal balance on the loan, the interest rate, and the number of days since the last payment. The rest of the payment goes to the principal. Making early payments or additional payments reduces the loan's principal and cuts the total interest paid over the life of the loan.
  • total annual loan cost (TALC)   A method of finding the annual cost of a reverse loan.

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