The Basic Components of a Mortgage

Mortgage Amount:
The total amount of money to be borrowed by the Purchaser and applied toward the price of the property. In general, the mortgage amount plus down payment equals purchase price.
 
Down Payment:
The amount of money provided by the Purchaser toward the purchase price of the property (not including legal fees or other acquisition costs). In general, down payment plus mortgage amount equals purchase price.
 
Interest Rate:
The actual cost of borrowing money, charged as a percentage of the outstanding amount owed. Usually compounded on a monthly basis.
 
Term of the Mortgage:
The period of time during which the loan contract is active. During this period the borrower makes periodic payments (usually monthly) to the lender and at the end of the term the balance of the loan becomes due and payable.

Amortization Period:
The period of time after which, if all monthly payments are made on time and in full, the loan will be paid out. The term and the amortization of a mortgage are often the same, but do not need to be. Instead of having a 30-year mortgage term with a standard 30-year amortization, the borrower could opt for three 10-year terms (called balloon mortgages). At the end of each term the borrower would have to refinance the loan, necessitating renegotiation of the interest rate and payment schedule with the lender.

Discount Points:
Discount points refer to the additional money the borrower may pay to the lender on closing to get a lower interest rate on the loan. The cost of one point equals 1% of the amount borrowed. This means that one point on a $150,000 mortgage equals $1,500. Usually, for each point paid for on a 30-year loan, the interest rate is reduced by about 1/8th (or 0.125) of a percentage point.

Prepayment Privileges:
The right of the borrower to pay out all or part of the outstanding principal before it comes due. These privileges are usually set out in the initial mortgage negotiations between the borrower and lender and will differ depending on the type of mortgage.