Cox-Ingersoll-Ross (CIR) Model: The Interest Rate Model Explained
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Key terms
- 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.
- 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.
- Compound InterestInterest calculated on both the initial principal and accumulated interest from previous periods. Often called 'interest on interest,' it's a powerful force for growing wealth over time.
- 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.
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