How does a mortgage loan work?

The lender provides the bulk of the money you need to buy your home, then asks that you repay the money in equal monthly installments. Each installment consists of principal, which is used to repay the original loan, and interest, which is the rent you pay on the money you have used for the previous month. While there are many types of home loans available, the most popular is a 30-year fixed rate loan. Under this program, the lender determines a standard monthly payment amount based on a loan amortization formula, then requires the borrower to make that fixed monthly payment every month. If you make the minimum required payment every month, it will take exactly 30 years for the loan to be repaid in full. However, if you pay more than the minimum required with any monthly payment, the surplus is used to lower the loan balance, and that causes the loan to be repaid faster. That can save you money in interest charges.

 

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