We are to the letter Y in our vocabulary blog!Only one more letter to go.If you haven’t noticed in my previous blogs there are only a few places that I trust to get financial explanations on the internet.Financial advice and execution is not the same for everyone, although everyone has an opinion on the matter.The good news is that when you are only looking for the definition and application of said financial, real estate or mortgage term or concept it seems that Investopedia has taken the lead on good information.This weeks topic is no different.Actually, I think its my favorite explanation of an interesting topic: Yield Rate.Do you know what it is?
Investopedia wrote an awesome article explaining the difference between Yield rate and Interest rate. In the article it states that “yield refers to the earnings from an investment over a specific period. It includes the investor earning such as interest and dividends received by holding particular investments. Yield is also the annual profit that an investor receives for an investment.
The interest rate is the percentage charged by a lender for a loan. Interest rate is also used to describe the amount of regular return an investor can expect from a debt instrument such as a bond or certificate of deposit (CD).
For example, a lender might charge an interest rate of 10% for a one-year loan of $1,000. At the end of the year, the yield on the investment for the lender would be $100, or 10%. If the lender incurred any costs in making the loan, those costs would reduce the yield on the investment.”
So, you see, its important to know all about yield rate because it does affect your interest rate to a degree.It would also come in handy when you decide to invest in real estate.Whether that is because you purchased a vacation home, vacation rental, decide to become a landlord, or get really serious and purchase a commercial property. Moral of the story it that a yield rate is the best way to evaluate and even project your earnings on any investment.