Mortgage 101

Mortgage Education Lesson #1

Geared towards first time homebuyers and those who want to revisit the basics.

Mortgage 101 provides an overview of need-to-know information that will help you achieve home financing goals.

  • What is a mortgage?
  • Why do I need a mortgage?
  • How do I get a mortgage?

What is a mortgage?

In general terms, a mortgage constitutes a loan made by a bank or lending institution to a person who wants to buy a house but doesn’t have the full amount to purchase. Most mortgages are available in 30 year20 year, 15 year, and 10 year terms.

For the technical definition of a mortgage and other mortgage terms, visit our Terms section.

Why take out a mortgage? As you know, houses cost several hundred thousand dollars and very few people can afford to pay the full value of a home at the time they’re looking to purchase it. In order to help people achieve their dream of owning a home, mortgage lenders provide the funds up front and require a long-term payment plan with interest added.

What is mortgage interest?

The term mortgage interest is the interest charged on a loan used to purchase or refinance a property.  The amount of interest owed is calculated as a percentage of the total amount of the mortgage issued by the lender.


What is the difference between a mortgage interest rate and APR?

An annual percentage rate (APR) reflects the mortgage interest rate plus other charges.

There are many costs associated with taking out a mortgage.  These include:

  • The interest rate
  • Points
  • Fees
  • Other charges

The interest rate is the cost you will pay each year to borrower the money, expressed as a percentage rate.  It does not reflect fees or any other charges you may have to pay for the loan.

An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate.  The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan.  For that treason, you APR is usually higher than your interest rate.

Refinancing a Mortgage

To refinance your mortgage is to restructure the terms of an existing mortgage loan in order to lower a monthly payment, consolidate high-interest debts (such as credit card debt or car payments), or leverage existing home equity for other purposes.

How do I get a mortgage?

After doing your research on available loan programs and getting comparative rate quotes, contact a Mortgage Loan Originator at the lending institution you choose. This person will be able to make sense of the several different loan options available, guide you to the right loan program choice, and help you to…

Submit your mortgage loan application!

Once you’ve submitted your application – which will include compiling such important documents as W2’s, tax returns, credit reports, etc.—a Loan Processor will be your main contact for the next steps and through to the end of the mortgage process.