What is Mortgage Interest?
Mortgage interest is the compensation a borrower pays a lender for money used to purchase property.
How Does Mortgage Interest Work?
Mortgage interest is the percentage charged on a mortgage that must be paid in addition to the principal. The mortgage interest rate is related to prevailing interest rate levels and may be fixed or adjustable.
Fixed rate mortgages have identical amortized payments for the life of the loan. [InvestingAnswers Feature: Amortization Schedule Calculator] By contrast, the payments on adjustable rate mortgages (ARMs) vary based on the fluctuations in an associated mortgage index.
Mortgage interest also applies to home equity loans.
Why Does Mortgage Interest Matter?
Mortgage interest rates correlate directly with the perceived risk of the borrower. In other words, the more likely the borrower is to default on a mortgage, the higher the mortgage interest rate. Mortgage interest is unique because it is a deductible expense on personal income tax returns in the U.S.
[If you're ready to buy a home, use our Mortgage Calculator to see what your monthly principal and interest payment will be.]
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
