Interest Cost

Also found in: Dictionary, Thesaurus, Medical, Encyclopedia.

Interest Cost (IC)

A comprehensive and time-adjusted measure of loan cost to the borrower.

IC on a Mortgage: IC is what economists call an “internal rate or return.” It takes account of all payments made by the borrower over the life of the loan relative to the cash received up front. On a mortgage, the cash received up front is the loan amount less all upfront fees paid by the borrower. On an ARM, IC captures the effect of interest rate changes on the monthly payment and the balance, but future rate changes must be assumed.

Formula: IC is (i) in the formula below:

L - F = P1 + P2/(1 + i)2 +… (Pn + Bn)/(1 + i)n

L = Loan amount

F = Points and all other upfront fees paid by the borrower P = Monthly payment

n = Month when the balance is prepaid in full

Bn = Balance in month n

IC Versus APR: IC differs from APR in the following ways: IC is measured over any time horizon, whereas APR assumes that all loans run to term. IC may be measured after taxes whereas APR is always measured before taxes. On an ARM, IC can be calculated on any interest rate scenario whereas APR always uses a no-change scenario.

References in periodicals archive ?
This interest cost difference is translated into annual dollar savings for issuers in Tables 3 and 4.
To check your understanding of the requirements for capitalizing interest costs, compute capitalizable interest costs for Phoenix Corporation, assuming the same situation as described above, except that construction expenditures were not evenly distributed throughout the year, but were as follows:
Following Kessel (1978), Benson (1979), Sorensen (1980) and Joehnk and Kidwell (1984), bond interest cost is deter mined by a set of variables representing bond issue characteristics and market conditions at the time of sale.
government, a contractor is not permitted to include its interest costs as a reimbursable cost.
We re also able to provide clients with enhanced portfolio composition and interest cost projections, based on various market scenarios and assumptions.
The bond was repaid using cash and by drawing down on committed liquidity facilities that carry an annual interest cost of 1.
OPTA STAT: OPTA STAT: A MORTGAGE price war loomed last night after one of Britain's biggest lenders slashed interest costs on a two-year fixed-rate deal to a record 1.
The company's ability to sustain performance in view of high interest cost, frequent change in government policies and competition in the international market remain the key rating sensitivities.
In the past several years, investment banks developed the callable/puttable bond structure, which further lowered interest costs.
Thus the implicit interest cost became more volatile throughout the sample period.
This offering is said to allow the company to lengthen its debt maturities at the same time it: educes its long-term interest costs.
overcame higher expenses and interest costs to push its bottom line ahead in the third quarter, after downturns in the first half.

Full browser ?