All mortgage loans are made up of two parts: A rate of Interest and a Term. The interest rate is the percentage applied to the unpaid balance of the amount you borrowed as a charge for the use of the money. This interest is paid in monthly installments, along with an extra amount which is paid towards the principal (the actual amount you borrowed). In effect, each monthly installment pays the interest and as well reduces the principal amount. Since monthly payments are constant, as time goes by, a greater amount of your payments are applied to reducing the principal amount.

The term defines the number of years that it will take for you to repay the loan plus the interest. Most loans do not last the full extent of the term, because people either refinance or sell the house sooner than the full life of the loan.

A mortgage loan is a secured loan. When you get the loan, you pledge a property to the lender to back up your promise to repay the debt. Personal loans, on the other hand, are generally backed only by the borrower's signature and past credit history. Since real estate tends to hold its value better than other assets, such as cars or boats, a home is a valuable security for a lender. This is why a lender is willing to lend you a large amount of money at a relatively low interest rate. Also, most mortgage loans are long-term loans and self-amortizing. This means that the regular loan payments include a portion to pay back the loan principal over the term or life of the loan.

The standard mortgage loan covers 80% of the cost of the home. However, mortgage loans are made for amounts ranging from less than 50% up to as much as 97.5% of cost. Most people who get high loan-to-value loans do so because they don't have much cash. And even if you have more money, you may not want to put it all into buying a home, because you put the money down, it will be hard to get it out in a hurry. If you are buying a home for an investment, a larger loan gives you more leverage. Your profits from appreciation will be a higher percentage of your equity. However, a large loan will require higher monthly payments. And if your income lessens, you may have a difficult time meeting the payments. As well, loans that have a high loan-to-value ratio may require a higher rate of interest and additional expenses for mortgage insurance.

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