The Essential Parts of a Mortgage

Principal is the amount borrowed, while interest is the cost charged for using that money. The loan term establishes how long the loan is scheduled to remain outstanding, and amortization determines how each payment is divided between principal and interest.

Upfront costs also affect the economics of a mortgage. Discount points may reduce the interest rate, while lender credits can reduce certain closing costs in exchange for different pricing. The best combination depends on available cash, expected time in the home, and the borrower's larger financial plan.

This lesson is general educational information, not individualized financial advice or a mortgage-rate quote. Loan programs, rates, fees, and eligibility vary by borrower, property, lender, and market conditions.

Source and further reading: Housing Brief / MBS Live Mortgage Education Library. This lesson is an original explanation by the Carson Home Team; source text is not reproduced.