What is the yield of a mortgage?
Mortgage yield refers to the returns generated from mortgage-backed securities like mortgage-backed bonds. It represents the amount of income produced by the mortgage investment relative to its price or value.
How do I calculate yield?
The basic formula to calculate yield is:
- Yield = (Net Realized Return / Principal Amount) x 100%
- For stocks, it can be calculated as:
- Yield = [(Price Increase + Dividends) / Purchase Price] x 100%
- For bonds:
- Current Yield = (Annual Interest Earned / Current Bond Price) x 100%
Is yield the same as interest rate?
No, yield and interest rate are not the same. The key differences are:
- Interest rate is the percentage charged by a lender for a loan
- Yield measures the total return on an investment, including interest/dividends and capital gains
- Yield considers the current market price of the security, while interest rate is based on the face value
How is yield calculated on a property?
For rental properties, yield is typically calculated as:
Gross Yield = (Annual Rental Income / Property Purchase Price) x 100%
For example:
- Weekly rent: $400
- Annual income: $20,000 (50 weeks)
- Purchase price: $380,000
- Gross yield = ($20,000 / $380,000) x 100% = 5.26%
What is the formula for yield in banking?
In banking, yield is often calculated as:
- Yield = (Net Realized Return / Principal Amount) x 100%
- For example, for a $1,000 loan at 10% interest for one year:
- Yield = ($100 interest / $1,000 principal) x 100% = 10%
The exact formula may vary depending on the specific financial product or investment being considered.
