Definition
Interest is what you pay for borrowing money—expressed as a percentage of the loan amount. On a $300,000 loan at 6%, you'll pay roughly $215,000 in interest over 30 years (more than the original amount!). Interest decreases over time as principal balance drops.
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Find my pathAbout this term
Interest represents the lender's compensation for providing funds and bearing the risk. On a $300,000 loan at 6%, interest totals approximately $215,000 over 30 years, more than the original loan amount. The interest portion of each payment decreases over time as the principal balance declines.
Pro Tip
Understanding how interest compounds on your loan helps you appreciate the long-term cost and value of paying off your mortgage early.
Example
On a $300,000 loan at 6%, the first month's interest payment is $1,500 (6% annual rate ÷ 12 months × $300,000), calculated on the remaining balance.