For your purposes, with respect to your individual income tax return (Form 1040), you have interest income and return of capital; the selling price of the house is largely irrelevant.
Your mother-in-law may have capital gain depending upon her adjusted basis and actual selling price less expenses.
If your mother-in-law passes away while still owning the home, the property should receive a stepped up basis to its fair market value on the date of her death.
