There are many things to understand about a Mortgage or Home Loan. There are several things that are considered when a borrower applies for a mortgage.

First of all the lender will look at your credit history. They will look to see if you have made on time payments to other lenders that you have borrowed from.

They will add up the cost of the house, property taxes, and insurance. From this figure they will determine if you will be able to make the monthly payment for the total amount of the loan.

One way that they are able to tell this is by what they call a Debt servicing ratio. This is where they take into account what you currently owe on debt and what your current income is.

When you are make your payments on a home loan regularly some banks will do a process they call amortization. When this happens your interest rate and monthly payment can be reduced. This is to help those that are faithful in making their payments.

There have been guidelines set for banks, credit unions, savings and loan institutions, or mortgage banks by two agencies Federal Home Mortgage Lending Corporation (FHMLC) and the Federal National Mortgage Association (FNMA. They are referred to as Freddie Mac and Fannie Mae.These guidelines are used when an appraisal is conducted on the property being bought.

There are different ways that interest is put on home loans. The first I am going to talk about is what is called accrued interest. This is when the interest is still being owed, but has not been charged to the borrower yet. It is usually charged at the end of the month.

There are home loans that have an interest rate that can not go any higher than the interest rate agreed upon. It can go lower. This is called a capped home loan.

In some cases when a home loan is being closed there will be what is called Adjustments. These are extra expenses that one of the parties have paid for but has not been used. They are more commonly called utility expenses. These adjustments are usually taken care of in the settlement of the loan.

We talked about a capped home loan earlier well there is another kind of home loan. It is called a fixed rate home loan. That is where the loan is fixed until the date given for the last payment. There are cases where the borrower would want to pay off the loan before it expires. When this happens the borrower is charged a break cost.

There is times when the borrower is not able to make their home loan payment. When looking over the history of someones home loan there might be months where it says that there is an arrear. This is where it is showing that the payment were overdue.

Now for the great part of any loan, when the borrower has paid all of the payments owed and does not need and more money loaned to them. At this point they will be discharged of the Mortgage. They will have no more obligations to the lender.

By : Court Tuttle