Interest Rate — Financial Glossary

Definition: The percentage of a loan amount charged by the lender for borrowing money, expressed annually.

What is an interest rate?

An interest rate is the cost of borrowing money, expressed as a percentage of the loan amount per year. For example, a 5% interest rate on a $100,000 loan means you pay $5,000 per year in interest (before amortization adjustments).

Fixed vs. variable

A fixed interest rate stays the same for the life of the loan. A variable (or adjustable) rate can change over time based on market conditions.

What affects your rate?

  • Credit score
  • Loan amount and term
  • Down payment size
  • Current economic conditions
  • Type of loan (fixed, ARM, FHA, VA)