Interest Cost

AAA

DEFINITION of 'Interest Cost'

The cumulative sum of the amount of interest paid on a loan by a borrower. This amount should include any points paid to reduce the interest rate on a loan, since points are in effect pre-paid interest. Additionally, any negative points or rebates paid by a lender to a borrower should be subtracted from the interest cost as they are in effect a refund of future interest the borrower will pay on the loan.

INVESTOPEDIA EXPLAINS 'Interest Cost'

Interest cost is one measure of loan economics. However, other measures such as lender fees and loan closing costs, tax benefits and consequences, principal reduction, and opportunity costs in the form of re-investment rates should also be included in a thorough analysis of loan choices.

RELATED TERMS
  1. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense ...
  2. Compound Interest

    Interest calculated on the initial principal and also on the ...
  3. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  4. Interest

    1. The charge for the privilege of borrowing money, typically ...
  5. Discount Points

    A type of prepaid interest mortgage borrowers can purchase that ...
  6. Delinquent Account (Credit Card)

    A credit card balance on which a consumer has failed to make ...
Related Articles
  1. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  2. Credit & Loans

    How Mortgage Refinancing Affects Your Net Worth

    Find out how to determine whether refinancing will put you ahead or even more behind.
  3. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  4. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  5. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Home & Auto

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  7. Fundamental Analysis

    How accurate or important is the debt service coverage ratio (DSCR) in evaluating whether to invest ...

    See how investors can use the debt service coverage ratio to evaluate the solvency of a company before making an investment decision.
  8. Credit & Loans

    What is the debt ratio for an FHA loan?

    Borrowing through the Federal Housing Administration requires individuals to provide proof of income as well as information relating to total outstanding debt.
  9. Credit & Loans

    What are common factors that lower your net worth?

    Net worth is determined by calculating financial assets versus liabilities. As the liabilities increase versus the assets, net worth is lowered.
  10. Fundamental Analysis

    What is the difference between the debt ratio of a company and the debt ratio of an individual?

    Discover the different financial evaluation measures that are most commonly applied to individuals and corporations, respectively.

You May Also Like

Hot Definitions
  1. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  2. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  3. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  5. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center