In real - world situations, such as evaluating the life of a mortgage
contract, finding the
effective interest rate requires knowing the principal amount, or the amount to be financed; the nominal
interest rate; any additional loan fees or charges; the number of times each year the loan is compounded; and the number of payments to be made each year.
The combination of declines in the
contract rate and initial fees took the average
effective interest rate on new home loans (which amortizes initial fees over the estimated life of the loan) down 8 basis points to 4.39 percent (after two consecutive months above 4.40).