1% = $15k difference
What is an interest rate?
An interest rate is the percentage of the borrowed amount you pay annually as the cost of borrowing. Borrow $10,000 at 5% and you owe $500 in interest per year. APR (Annual Percentage Rate) is always higher than the stated rate because it includes fees. A 1% difference on a $300,000 mortgage costs over $70,000 over 30 years — rate differences compound dramatically over time.
Level
Try calculatorKey takeaways
04 · ideas- Interest rate is the annual cost of borrowing, expressed as a percentage
- APR includes fees and is always higher than the stated rate
- 1% rate difference on a $300k mortgage = $70,000+ over 30 years
- Central banks set benchmark rates that ripple through every loan
Illustrative chart
$200k · 7.5% · 30yr
Loading…
An interest rate is the price you pay to borrow money, expressed as a percentage per year.
Simple example: You borrow $10,000 at 5% annual interest.- After 1 year: you owe $10,500
- The $500 is the interest — the lender's fee for letting you use their money
Interest rates appear in everything: mortgages, car loans, credit cards, savings accounts. When you borrow money, you pay interest. When you save money, you earn interest.
The three big factors that determine your rate:- Your credit score — higher score = lower rate (you're less risky)
- The loan type — mortgages have lower rates than credit cards (secured vs unsecured)
- The economy — central banks raise/lower benchmark rates, affecting all loans
- Rate: the raw annual percentage
- APR: rate PLUS fees — always higher, always more honest