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  Dear
Dr. Don,
I see a yield on a one-month CD at 1.15 percent.
Is that a yearly yield being quoted or is the 1.15 percent a monthly
return, in the case of a one-month CD?
-- Chris Certificate
 Dear
Chris,
The return is an annualized return. Putting returns
on an annualized basis allows you to compare across investments. That's
the logic behind financial institutions posting annual percentage
yields (APY) when advertising interest rates on deposits, as required
by the Truth in Savings Act. A 1.15 percent monthly return would be
close to 15 percent as an annualized yield.
Dear Dr. Don,
Do the average interest rates displayed on the
Bankrate Web site take into consideration the points associated
with the rate? (Is it calculated assuming zero points?)
-- Tom
Dear
Tom,
Bankrate provides both the nominal rate and the
annual percentage rate for the mortgage rates listed on its Web
site. The nominal rate is the interest rate used to calculate the
mortgage payment, while the APR includes a projection of fees and
any points paid to provide an estimate of the all-in cost. Here's
what Bankrate's glossary says about the APRs for fixed- and adjustable-rate
mortgages:
APR -- For fixed-rate mortgages, the
annual percentage rate will be higher than the note rate because
the APR is figured in a standard way to reflect the true annual
cost of borrowing, including points and closing costs. Consumers
can use the APR to make 'apples to apples' comparisons.
For adjustable-rate mortgages, a fully-indexed
APR is used that is based on a comparison that is made at each
adjustment date of the 'then current' rate plus 2 percent vs.
the margin plus the index. As part of this calculation, the index
is assumed to remain constant throughout the life of the loan.
When the underlying indexes are low, it is possible for the fully-indexed
APR to be lower than the starting rate on the loan.
Two fixed-rate mortgages with the
same nominal rate will have different APRs if one charges zero points
and the other requires the borrower to pay points.
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