How do mortgages and interest rates work?

My fiance and I want to buy a house or condo together in a year. We have 200k saved. We live in Toronto. We will have a dual income of over $ 125k. Would it be better to buy a small condo to avoid needing a mortgage and interest rates? I’m confused about how interest rates work. What’s a common interest rate, and what exactly does it apply interest to? Cumulatively, how much could we save by forgoing a mortgage on say, a 500k house that we would need a mortgage on, if we just bought a small condo for $ 250k, in cash? I’m thinking we buy a condo, we wouldn’t need to make monthly payments for mortgage or rent, and we could save to buy a $ 500k house in less than 10 years – we’ll already have over 200k, and over ten years we could save AT LEAST 30% of our earnings, and we’d never have to worry about paying interest rates, or fees.

But all of this really depends on how much interest rates are to begin with. If an interest rate is 3% does that mean overall we’ll be paying 3% on top of what our mortgage is? So if we had a 300k mortgage, do 3% interest rates mean we’d end up paying $ 309k? I just don’t understand how they work.

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