Definition
The interest rate is the annual percentage charged by a lender for borrowing money, expressed as a percentage of the loan balance. It determines how much you pay in interest each year on top of repaying the principal.
Example
On a $280,000 mortgage at 6.5% interest, you owe roughly $18,200 in interest in the first year alone. As you pay down the balance, the dollar amount of interest you pay each month gradually decreases.
How It's Calculated
Monthly Interest = Loan Balance × (Annual Rate ÷ 12)
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