Nominal interest rate

Nominal interest rate is the contractual interest percentage agreed between borrower and lender, shown explicitly in loan documents without correction for inflation or market risk. It represents the actual percentage paid or charged on the principal amount.

In commercial real estate financing, the nominal rate directly determines periodic interest payments. A €500,000 loan at 4.5% nominal requires €22,500 annual interest payments regardless of inflation. Understanding nominal rates versus real rates (inflation-adjusted) is critical for assessing true borrowing costs and investment returns over time.