Video lesson
Foundations · 2 / 8
Why do you usually pay back more than you borrowed?
How families borrow money to buy a home
1 · Start with the idea
When someone lets you use their money for months or years, they usually charge for that use. The amount you originally borrowed is different from the charge for using it.
2 · Picture it
If you borrow $100 and later repay $106, the first $100 is the money borrowed. The extra $6 is the cost of using that money for a period of time.
3 · Now learn the English words
principalthe amount borrowed, or the amount still owed
interestthe charge for using borrowed money
termhow long the loan is scheduled to last
4 · Why this matters
Later, almost every home-loan calculation will use these ideas. Learning them early makes the harder numbers much easier.
5 · Check yourself
What is the difference between principal and interest?
Show answer
Principal is the money borrowed or still owed. Interest is the charge for using that money.
Source
StateCourse California Mortgage Loan Brokering & Lending · Lesson 02