What exactly is a Mortgage?

It may seem like a silly question, but it’s definitely not! Here you’ll find a breakdown of what a mortgage consists of. You’ll be a mortgage banker in no time!

A mortgage loan is a loan that vLoan would give you to help finance the purchase of your new home. To get the most out of a loan you should borrow approximately 80% of the value of the house or less. So you may be thinking, what are the components that make up a mortgage? Look no further, the four major points are explained below.

The Big Four

Commonly referred to as PITI, or Principal, Interest, Taxes, and Insurance are the four main parts that make up a loan that are normally paid off on a monthly basis.


This is the mound of cash you borrowed to buy your home. In other words, if you have a $250,000 mortgage loan, your beginning principal balance is $250,000. That’s easy enough, right? See, we told you it wasn’t as hard to understand as you thought!

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This is the price you would pay us for borrowing the money for your home. It’s a give and take process!


Taxes are one of those things we don’t want to pay but we have to! These types of taxes consist of property taxes that you pay as a homeowner. They are usually calculated based off of the value of your home.

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Last but not least, insurance. This can be made up of a couple of different items, like homeowners insurance or mortgage insurance (MI). Homeowners insurance is required by us (and all other lenders) to cover your house and potentially even the property inside. You will have to pay mortgage insurance if you put less than 20% down – this is for those “just-in-case” problems that lenders like to protect themselves from.

One last thing to mention, when you sign the documents for your mortgage you may notice something called a “mortgage note”. A mortgage note is the pinky promise you make us that you will repay the balance of your mortgage, including interest and all other possible costs over the lifetime of your loan.

If you go back on your pinky promise (which we know you won’t!) we have the option to take back your home. This is better known as a foreclosure.

Are you feeling any better about the process? We hope so! Let’s keep this education train going. What’s up next?

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