Capitalized Interest

Capitalized interest is the interest that is added to the principal amount of a loan. This means that the interest is not paid out separately, but is instead added to the amount of money that you owe. This can increase the overall cost of the loan, as you will be paying interest on the interest that has been added to the principal.

There are a few reasons why a lender might capitalize interest. One reason is that they may be offering a lower interest rate on the loan if the interest is capitalized. This is because the lender is taking on the risk of the interest not being paid, and they are compensating for this by charging a lower interest rate.

Another reason why a lender might capitalize interest is that they may be trying to make the loan payments more affordable. This is because when interest is capitalized, the monthly payments will be lower than they would be if the interest was paid out separately. However, the overall cost of the loan will be higher, as you will be paying interest on the interest that has been added to the principal.

It is important to understand how capitalized interest works before you take out a loan. If you are not sure whether or not your loan has capitalized interest, you should ask your lender.