What is a mortgage loan?
A mortgage requires you to pledge your home as the lender's security for repayment of your loan. The lender agrees to hold a lien on your title until you have paid back your loan plus interest. If you do not repay your mortgage loan, the lender has the right to take possession of your house and sell it in order to satisfy the mortgage debt.
Principal and Interest
All mortgages have two features in common. The first feature is the mortgage principal, which is the actual amount of money you borrow. So, if you take out a $70,000 mortgage, your mortgage principal is $70,000.
The second feature is the mortgage interest, which is the money you pay for use of the money you borrow. How much interest you pay over the life of your loan depends on a number of factors. The interest you pay on your mortgage can be deducted from your income taxes, which is one of the many benefits of homeownership.
Over time, you will repay 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 a fixed period of time. During the first few years, most of your payments will be applied toward the interest you owe. During the final years of your loan, your payment amounts will be applied almost exclusively to the remaining principal. This type of repayment method is called amortization.
When you sell your home, you will be required to pay back any remaining principal balance due on your mortgage loan to your lender.