What Is Capitalisation Rate? Cap Rate Formula Guide
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Key terms
- Cap RateCapitalization rate measures a rental property's potential return, calculated by dividing net operating income by the property's market value. A property generating $12,000 annually valued at $200,000 has a 6% cap rate. Used to compare investment properties.
- Annual Percentage Rate (APR)The yearly cost of borrowing money, including interest and fees, expressed as a percentage. APR provides a complete picture of loan costs beyond just the interest rate.
- Fixed-Rate MortgageA mortgage where the interest rate remains constant throughout the loan term, providing predictable monthly payments. Most common terms are 15 and 30 years.
- Interest RateThe percentage charged by a lender for borrowing money, or earned on savings and investments. Can be fixed or variable depending on the financial product.
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