Interest: A surcharge on the principal loan balance

Sam

Interest can be defined as an additional charge on the principal balance of the loan. It is expressed as a percentage of the loan amount. The interest is usually charged throughout the loan period, that is, till the loan balance is paid back.

The interest on a mortgage loan is generally paid to the lender in the form of periodic (monthly) installments together with the repayment of the principal loan amount. It may also be considered as a compensation charge to the lender for the use of funds borrowed from the latter.

Mortgage interest is calculated annually based on the interest rate of the mortgage loans opted for. The daily, weekly and monthly interest payments on these loans can be determined too. Interest rates on mortgages are much lower than personal loans and this mainly due to the competitive nature of the mortgage lending market.

The interest associated with a mortgage loan, that is the mortgage interest, is the largest item considered for tax deductions. This helps people living in areas where greater housing costs prevail.

The mortgage interest rate serves as an indicator of the economy. The economy can be considered to be stable provided the mortgage rates prevailing in the market are much higher.

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