Quick Synopsis on How Home Mortgages Work


Arranging your first home mortgage can be an overwhelming experience, with a variety of new terms and complex ideas that financing your home entails. To understand how a home mortgage works, the concept can be broken down into a number of smaller concepts that make it easier to understand.

Quick Synopsis on How Home Mortgages Work

What Is a Mortgage?

A mortgage is a long-term loan that uses the property being purchase as the collateral for the loan. This loan of money may be from a conventional bank, mortgage broker or online lending institution.

Elements of a Mortgage

The home mortgage loans generally consist of several two basis parts, the principal and the interest. In addition to these amounts, other expenses may be added to the mortgage amount.

· Principal – This is the amount of money required to purchase the home.

· Interest – This is the amount of money paid to the lending institution for use of their money.

· Real Estate Taxes – These are taxes that must be paid to the state government for the ownership of property.

· Property Insurance – Most financial institutions require that the property being financed by insurance against losses, such as fire, wind, flood and other casualties.


Amortization is the process of decreasing the loan amount over a period of time. Each time a payment is made, a portion goes toward reducing the amount of interest owed, as well as a portion of the principal. An amortization schedule is provided to the lendee with the specific amounts that these items are reduced. Be very aware of your amortization schedule while you are getting mortgage rates in Florida or your locale so you can understand how your mortgage will shape your retirement plans.

Importance of Interest Rates

Interest rates for home mortgage loans are a matter of concern for homebuyers because they can significantly impact budgeting for your monthly payment.

· Fixed Interest Rate Loans – These are loans that have the same rate of interest over the period of the loan. The amount of the loan payment does not change over the life of the mortgage.

· Adjustable Rate Loans – These are loans in which the interest rate changes over the period of the loan. The interest rate varies when a broader measure of interest rates, called the index, moves higher or lower. Your monthly payment will vary with the interest rate changes.


Your mortgage payment is generally due every month. Late payments may incur additional expenses and potentially impact your credit score. As long as you continue to pay your mortgage, you will decrease the amount of the loan and increase the amount of equity, the amount of money above the loan amount that you will get when you sell the property.

Understanding the basic concepts of home mortgage financing will help you to make smart decisions when financing your property.

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