Interest Rate
Quick Definition
The percentage charged on the principal loan balance per period.
Full Explanation
An interest rate is the percentage a lender charges on the principal amount borrowed, expressed on an annual basis. In Canada, interest rates are influenced by the Bank of Canada's overnight policy rate. There are two types: fixed rates (locked in for the loan term) and variable rates (fluctuate with the prime rate). The interest rate does not include fees, which is why comparing APR is more meaningful for total cost. For mortgages, Canada uses semi-annual compounding by law.
Related Terms
APR (Annual Percentage Rate)
The true yearly cost of borrowing, including fees and interest.
Prime Rate
The base lending rate banks use, tied to the Bank of Canada overnight rate.
Fixed Interest Rate
An interest rate that stays the same for the entire loan term.
Variable Interest Rate
An interest rate that fluctuates based on the prime rate.
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