Mortgage is a legal process through which a borrower takes a loan for the purchase of residential or commercial property. The same property is kept as the security for the debt.

In general, a mortgage transaction involves two parties � the lender or the mortgagee and the borrower or the mortgagor.
Mortgage lenders are concerned about your financial strength in paying for the loan costs and making the monthly payments to clear the debt. So, they will consider your credit score, your monthly gross income, and the amount of cash you can pay as the down payment. The higher your score, the lesser is the risk in offering you the loan.

The loan amount depends on the value of your home and the down payment. The interest rate charged on your loan depends upon your credit score, discount points and down payment. The better your score and the higher your down payment and points, the lower is the rate offered. Getting a lower rate is also possible if you can pay a part of the loan amount as prepaid interest or points. You may get a loan at fixed rates, variable or adjustable rates or a combination of both the rates.
The loan application that you have submitted goes through a process of review before the lender gives his approval. After the lender approves the mortgage, he decides upon the date of closing. The closing involves the signing of legal documents including a mortgage note which obligates you to repay the loan in time.
At closing, the lender requires you to pay for the costs of originating and processing the loan. You will also have to deposit property taxes and insurance premiums into an escrow account which ensures that these payments will be paid in time. The rest of the taxes and insurances are paid along with the monthly mortgage payments in order to protect the lender from tax liens and uninsured losses.

The monthly mortgage payments include the following:

• The loan principal is the amount that you borrow in order to purchase a property.
  
• The interest that you pay for taking the loan. The interest payment depends on the mortgage rate which fluctuates with changes in the economy.
  
• Escrow payments including property taxes and insurances to prevent losses against fire, theft, and disasters.
  
• PMI (Private mortgage insurance) premiums which you require to pay along with monthly installments if you have made a down payment of less than 20% of the sale price or home value, whichever is less.

The mortgage loan is paid off within a specified time period known as the loan term that varies from 10 to 50 years. The monthly payments vary depending upon fluctuation in rates as in case of adjustable-rate mortgages, or ARMs. The payments also change on the basis of fluctuation in taxes, and insurance premiums for both ARM and fixed-rate mortgages.

While you are repaying the mortgage, the title of ownership of the property still remains with you. But if you fail to pay off the outstanding balance, the lien created in the mortgage allows the lender to take away your home. He gets the right to sell off the property in order to get back the loan balance.

You may apply for a mortgage with a bank, a credit union or a broker depending upon your requirements. But in each of these cases, you need to shop around for the best loan package, that is, which offers a reasonable rate and does not require extra charges in the form of hidden fees.