Mortgage Loan Basics

Key Facts About Mortgage Loans

A mortgage requires you to pledge your home as the lender’s security for the repayment of your loan. The lender agrees to hold the title to your property, or in some states to hold a lien on your title, until you have paid back your loan plus interest. If you do not repay your mortgage the lender has the right to take possession of your house and sell it in order to satisfy the mortgage debt.

All Mortgages have two features in common:

  • Principal: The first feature is the mortgage principal, which is the actual amount you borrow. For example if you take out a $200,000 mortgage your mortgage principal is $200,000.
  • Interest: The second feature is the interest, which is the money you pay for the use of the money you borrow. Interest rates are volatile and how much interest you pay over the life of the mortgage loan depends upon many different factors. The interest you pay on your mortgage may be deductible. Consult a tax professional for advice. The higher the income tax bracket the more you may save in taxes by owning your own home.


Over the specified time of the loan 30 year, 15 year, etc, you will pay off your mortgage gradually through regular monthly payments of principal and interest. The amounts of these payments are calculated to let you own your home debt free at the end of the fixed period. During the first few years most of your payment will be applied toward the interest. During the final years your payment will mostly be applied the remaining principal. This type of re-payment is called amortization.

Five factors that effect your mortgage:

The price of a house is determined by the location, size, condition, and special features. Before house shopping you want to consider these five factors to determine how much you can afford to borrow. A change in any one of them will influence the final loan amount you qualify for.

  1. The size of your down payment.
  2. The amount of your mortgage.
  3. Your mortgage interest rate.
  4. Re-payment term of the mortgage loan you choose.
  5. How much debt you owe.