Mortgage interest is the interest paid on a loan that is used to purchase a property. When someone takes out a mortgage to buy a house, they agree to repay the borrowed amount plus interest over a set period. The interest is the cost of borrowing the money.
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Mortgage interest determines how expensive a home loan becomes over time.
The interest rate on a mortgage can be fixed or variable. A fixed rate remains the same throughout the agreed period, providing predictable monthly payments. A variable rate can change based on market conditions and central bank policies.
The level of mortgage interest directly affects housing affordability, because higher rates increase monthly payments and total repayment costs. Changes in mortgage interest rates can also influence the broader economy, as they impact consumer spending, real estate demand, and construction activity.
Short example:
Suppose a person borrows $300,000 to buy a house at a mortgage interest rate of 4 percent.
Each year, 4 percent interest is charged on the outstanding loan balance.
If interest rates rise to 6 percent and the mortgage has a variable rate, the monthly payments will increase, making the loan more expensive over time.
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