When a buyer gets a mortgage, the home/residence will be security for the lender if the buyer defaults. The lender is the one who holds the title/deed to the house until the loan including the interest is paid off. In some states the lender holds a lien on the title or deed.

The Basics

* The Mortgage Amount

This will be the amount that you will get from the lender for your new place of residence. It comes with a term that states how the loan will be re-paid (time, interest etc...). The most used mortgage term is over a period of 30 years. This varies based on the borrowers current situation. If a borrower can afford higher monthly payments, they can choose to select a mortgage term that is shorter. Other common mortgage term lengths include 20 years, 15 years and 10 years. The longer your term is for, the lower your monthly payments will be.

* Amortization

Over the term of your loan, you will be paying monthly payment which include the principle and the interest rate. Usually the first few years of payment goes to the interest owed and during the final years it goes to the the principle. This is called amortization and is very common.

* Fixed or Adjustable Rates

It is important to choose an interest rate that works for you. Adjustable rate mortgages mean the interest rate changes throughout the entire term. Adjustable rates include both increases and decreases to the interest rate. The more secure fixed-rate means interest rate will never change during the term of the loan.

* Down Payment

The down payment is what you pay to get the loan in the first place. The down payment is not included in the loan and must be paid by the buyer. Generally, the larger down payment paid will reduce the amount of money the borrower will borrow. The bigger the down payment means lower monthly payments. Lenders tend to view mortgages with large down payments as more secure.

* Closing Costs

During closing, primary ownership of the house is transferred to the borrower. Closing costs are usually expressed as a percentage of the loan amount or in some cases the sale amount. This varies from state to state. During the closing, there will usually be extra transfer and recording fees. More closing fees might include taxes, attorney fees, title insurance, site survey, appraisal and documentation fees.

* Points

Points are a fee that lenders charge. A point equals 1% of the loan. For example if a loan of $100,000 is taken out, a point would equal $1,000.