In the most simple of terms, a mortgage is a loan used to finance the purchase of a home. Under a mortgage, the buyer used the home as collateral for the loan. The mortgage is the contractual loan requiring the buyer to pay back the amount, plus interest and costs, typically over a 15 to 30 years period. Failure to repay the loan can result in the lender taking back the home and then selling it to pay off the debt. The lender hangs on to the deed until the borrower has repaid the mortgage in full.
When repaying a loan, the borrower has to pay both the principal and the interest. The principal is the portion consisting of the original loan amount. The interest is the cost of borrowing the money over the last month. During the first few years, most of the payments will go toward the interests; the payments in the latter years go primarily toward the principal.
Additionally, mortgage payments usually include property taxes and mortgage insurance.
There are generally two parts to every mortgage: 1) the promissory note, which is the promise to pay and, 2) the mortgage itself, which provides the security for the promissory note.