Glossary term
Interest rate differential
A method some lenders use to estimate a prepayment charge by comparing a mortgage's contract rate with a defined comparison rate for the remaining term.
Plain meaning
What interest rate differential means
An interest rate differential, often shortened to IRD, compares interest amounts under rates defined by the lender's contract and disclosure method.
How OpenBook uses it
One possible component of a charge
OpenBook uses IRD to explain one possible component of a mortgage prepayment charge. It does not use the term as a universal penalty formula.
Common boundary
IRD methods vary
"IRD" does not identify one universal formula. Comparison rates, discounts, timing, and contract methods vary by lender and mortgage.