Mortgage is a loan that you borrow to purchase a home. Once you buy the home, the home will become the collateral for the lender. This is the agreement you make with them. In case of the default of the payment, the lender will take away your home. So, you remain liable to pay off the loan with other charges such as interest rates and other agreed fees. This is what can be termed as Mortgage. As with the case of any other loan, you need to clear off the debt. Else, you will lose your property and your credit score will be badly affected. So, take mortgage when you can actually pay the loan off. Normally the tenure to make the payment is 15-20 years divided in monthly installments which include the principal amount borrowed, the interest rates as agreed with your issuer, applicable taxes and insurance. Together they are also known as PITI (principal, interest, taxes & insurance)

Let’s discuss all of them in details.

• Principal: Principal is the amount of money which you borrow from your lender. Say, you need $20,000 to buy a home. So, this amount of $20,000 is the principal which you have to pay by all means. However, before you get this sum as a mortgage you need to make a lump sum as a down payment towards your mortgage that will be financed to you.
• Interest: Interest is the finance rates that your lender charges on your loan in percentage of your principal. This rate is usually agreed by you and your lender. The rates may change with your payment structure. If you make more payment towards your principal, the interest rate may be lower a bit and vice versa. If you make regular payments in installments, the lender usually considers lowering your interest rates. This helps you greatly.
• Taxes: As with any property, your home is no exception. Your home will be levied with applicable taxes by the local authority. Your paid taxes go to the community which uses the money to build roads, bridge, schools or so. A percentage of your home’s value evaluated by the authorities is goes into your tax. You must pay the taxes before taking full possession of you home.
• Insurance: No lender will allow you to take possession of you home if you don’t have a home insurance. This insurance is must to cover your home from possible fire, natural calamities, theft and other such causes. The insurance gives insulation to your lender in case there is any fatal loss to your home. The loan amount can be recovered from the insurance money you have for your home.

So, I guess you have estimated your mortgage repayment amount. The principal and the interest eat up majority of your monthly payments towards your loan. This is also called amortization. The amount borrowed and the amount paid back to the lender is different in scale. So, make sure to budget your finance before you take a mortgage loan.