Question:

What includes the interest cost formula?

Answer:

The interest cost formula allows calculating the entire interest to be paid by the borrower over the lifetime of a loan. Interest cost (IC) is easy to mistaken for the APR. In fact, the APR is a type of interest cost calculation.

They are both used to combine interest rate and other loan payments to show how much the borrowers is paying over the loan term. While APR is calculated for the entire term of the mortgage loan, the interest cost (IC) can be calculated over different periods. Calculating interest cost over different periods the borrower would like to have the mortgage for offers greater flexibility and accuracy to the borrower to make decision on a loan, in comparison to APR calculation.

How is the interest cost (IC) formula different from APR formula?

The interest cost formula is more flexible than APR calculations. Unlike APR, interest cost calculations allow for more scenarios - for example, IC formula takes into account different loan periods and borrower specific details. Also, APR is calculated with fixed interest rate, over the loan term and before taxes, whereas interest cost formula allows a variety of scenarios according to customer personal details, as for the period before moving out and after taxes are calculated.

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