What are interest rates in the context of borrowing?

Interest rates in the context of borrowing represent the cost of borrowing money, expressed as a percentage of the amount borrowed. This percentage reflects the lender's charge for providing the loan, and it plays a crucial role in determining how much a borrower will ultimately pay back over the life of the loan. For example, if a loan has an interest rate of 5%, the borrower must pay back the principal amount plus an additional 5% as the cost of borrowing. This concept is fundamental in real estate transactions, as it directly influences mortgage payments and overall affordability for buyers. Understanding interest rates is essential for making informed financial decisions regarding borrowing and investment.