When you sign a mortgage, your lender agrees to loan you a certain amount of money so you can buy your dream home. You then agree to repay that amount with the added interest charge, mostly in monthly installments, over a preset period of time, usually 15 to 30 years. Do keep in mind that some people often use the terms ‘home loan’ and ‘mortgage’ interchangeably.

What Goes Into a Mortgage Payment

Your mortgage payment is determined by the principal amount of your loan (the sum your lender lets you borrow). To determine your monthly payment, the interest rate that your loan calls for is applied to the principal sum. Your monthly payments are then spread in installments for the duration of the loan term.

Generally, you get to choose between a 15-year or a 30-year repayment period. With the 15 year option, you’ll pay less interest, but your monthly payments will be higher.

Sometimes you may owe more than just principal and interest on a monthly basis. This is because your mortgage lender takes charge of paying your quarterly property taxes and your annual homeowners insurance premiums. Here, you’ll pay your lender additional money every month that goes into an escrow account. Your lender then dips into that account as your property tax payments and homeowners insurance premiums are due.

How to Apply for A Mortgage

Securing a mortgage can often be a time-consuming process, but doesn’t have to always be a daunting one. The first step involves looking at lenders to see which ones are offering the best mortgage rates. The interest rate you pay on your mortgage determines what that loan will cost you over time. The better your credit score is, the more likely you will be to snag the most competitive rates a given lender is offering.

Mortgage rates are usually either fixed or adjustable. With a fixed mortgage, you will be paying the same interest rate over the life of your loan. With an adjustable-rate mortgage, that rate can start to vary over time, so you may start out paying very little interest but that rate may increase down the line. In some cases, the rate on an adjustable-rate mortgage can even go down over time as well.