There’s been more bad news recently about the housing market. Home foreclosures are up. Thousands of higher-risk homebuyers have found the mortgage that got them in the door is now pushing them out.

Most of these loans carried adjustable interest rates. When interest rates were lower three and four years ago, the buyer could qualify and make the payments. Now the interest rates have adjusted higher and, unfortunately, many of the borrowers’ incomes haven’t, meaning they can’t make the payments and have to leave their homes.

This is the sub-prime, meaning risky, mortgage market problem, and many economists (like yours truly) and other financial experts warned it could occur when super-low, and unsustainable, interest rates were offered earlier this decade. It’s understandable that folks who are eager to buy a home often only look at the current costs and ignore long-run expenses. It’s an easy trap to fall into.

But perhaps a bigger question is why interest is charged at all on home mortgages or any other type of loan. Clearly these charges make loans more expensive and, it can be argued, the interest expense is a big reason why borrowers sometimes have a difficult time making their loan payments.

For example, if you borrowed $100,000 and repaid the loan over 30 years with no interest, your equal monthly payment would be $277.78. But if 6 percent interest was charged, the monthly payment jumps to $599.95, and the total repayment over 30 years would be $215,838, over twice what you borrowed.

I’m sure you’re thinking, this is a rip-off, a total rip-off! But let’s step back and look at the economics of lending. To do this, let’s put you in the position of the lender. Suppose someone wanted to borrow $1,000 from you and repay it in 10 years. Wouldn’t it be fair to simply ask for the $1,000 back 10 years from now?

One problem with the deal is that the economic world likely won’t stay constant over this decade, and specifically, prices won’t stay constant. Rising prices, or inflation, make future dollars worth less. An average yearly inflation rate of 3 percent would make $1,000 10 years in the future worth only $700 in purchasing power. So loaning $1,000 today and getting $1,000 back in a decade is really like being repaid $700, when inflation is taken into account.

Another issue is human nature. Most of us would rather have things now than wait for them—it’s just the way we’re wired. Having things we like now means we can enjoy them for a longer period of time. It also means we won’t miss this enjoyment if something causes us not to be around in the future.

Then there’s the matter of risk. There’s a chance the person you loaned the $1,000 to won’t be able to repay it. Health or job issues might prevent the borrower from repaying all or part of the $1,000 loan when it is due.

So these three issues—inflation, our desire for “now” over “later,” and risk—are three factors that make a simple transaction of loaning $1,000 now and getting $1,000 back later more complicated. In fact, without “charging” for these factors, few loans would take place.

What form do the charges take? They’re all incorporated into an interest rate. Lenders will attempt to forecast the future annual inflation rate and have it be one element of the interest rate. They’ll add to it an interest rate to account for the cost of giving up use of money now, usually 2 percent or 3 percent, and then finally a piece will be included for the risk of the borrower. This final piece will be lower for less-risky borrowers, and higher for more-risky borrowers.

By this logic, interest charges aren’t some unfair expense used to get more out of borrowers. Instead, interest charges are really compensation for the costs borne by lenders. I think you’ll agree the next time someone asks you for a loan.

Michael L. Walden is a William Neal Reynolds distinguished professor at North Carolina State University and an adjunct scholar of the John the Locke Foundation.