What is the definition of interest?

Interest is defined as the cost of borrowing money. When a borrower takes out a loan, they are not only responsible for paying back the principal amount borrowed but also an additional cost known as interest. This interest represents the lender's return on investment for the risk of lending and the opportunity cost of not being able to use that money elsewhere. It is typically expressed as a percentage of the total loan amount over a specific period.

Understanding interest is fundamental in finance, particularly when dealing with mortgages and any form of loans, as it affects the total amount payable over time.

The other options pertain to different financial concepts: while profit from investing money is related to investment returns, the fees associated with mortgage processing are administrative costs and do not reflect the borrowing cost, and penalties for late payments are charges imposed for not meeting payment deadlines, which do not define interest.