Mortgage Repayment Guide

A mortgage is a home loan used as financing for purchase of a property, according to Business Dictionary. Homeowners are the mortgagors who offer conditional right of ownership, or a lien on the property, to a lender (mortgagee) in exchange for the loan. Mortgage repayment refers to the repayment process the borrower goes through over time to pay back the loan principal plus interest.

Repayment Basics

• Mortgage repayment takes place over a specific period of time known as the loan term. Monthly payments are made over the life of the loan term that ultimately cover the original loan balance and financing costs charged by the lender. Loan terms vary. Fixed-rate loans typically include terms of 15, 20 and 30 years. Thirty year loan terms are common, but some homeowners opt for 15 years to reduce interest owed. Some states have lenders that offer extended loan terms of 40 years.

Monthly Payments

• Monthly mortgage payments are a basic monthly debt obligation for the majority of homeowners. An amortization schedule is set up to include principal (P) and interest (I) allocations for the life of your loan term. Early on, most of your payment goes toward interest. As your principal balance gets lower, a higher portion of your payment goes to principal. Property taxes (T) and homeowners insurance (I) are often included in your monthly mortgage payment (known as PITI) and held in escrow until payment is made by the mortgagee, according to the Mortgage Learning Center overview "What's in a Mortgage Payment?".

Home Equity and Extra Principal

• Buying a home not only gives you a place to live, it is also an investment. You make an upfront investment of cash through your down payment. Conventional mortgages usually require a 20 percent down payment while government-sponsored loan programs require less, but include mortgage insurance. Every time you make a monthly mortgage payment, you build more equity (ownership) in your home. In his article "Extra principal won't reduce mortgage payments" on Bankrate.com, Don Taylor, Ph.D., CFA and CFP, says that paying extra principal each month does not lower your payments, but it reduces your repayment period and saves you interest.

Mortgage Insurance

• The Home Loan Learning Center notes that government-sponsored lender programs including Federal Housing Authority (FHA) loans typically accept a down payment below 20 percent. Government-backed loans encourage lenders to take on the risk of loaning to borrowers who would otherwise be too risky. It enables borrowers without down payment cash to buy. With these loans, mortgage insurance is required and payments are added to your monthly mortgage, typically until you achieve more than 20 percent equity in the home. Mortgage insurance protects the lender if you default.

Payoff

• A mortgage payoff amount is useful when you refinance your current loan, sell your property or near the end of your loan term. Payoff is defined as the "complete repayment of a loan," according to Business Dictionary. After payoff, you are discharged from your debt obligation and your lien is released by the mortgagee. When a payoff event comes about, your lender gives you an amount of principal plus accrued interest to pay on the specific payment date.