If we had to identify the most important elements of a mortgage, perhaps we would talk about three major topics: the amount of capital lent, the interest rate and the repayment period.
The capital lent, or principal, in a mortgage is essentially the money that is requested in order to purchase the desired asset (an apartment, a house, a store, etc.). Therefore, the mortgage contract sets out the amount that the borrower (the party who receives the money) requests and receives from the lender (the institution that provides the money).
However, the lender of a mortgage lays down certain conditions for the provision of the funds, which in financial terms consists of setting a price for the capital provided. This is what is known as the interest rate. The interest rate is a “value” which credit institutions stipulate for lending money, depending on several aspects such as the amount lent, the repayment period, the profile of borrower, etc.
Thirdly, we have the amount that the borrower has to repay to the lender, which is known as the repayment. There are different types of repayment: ranging from identical fixed payments (French mortgage) to variable formulas with payments that increase over time. Nevertheless, whatever the case, determining the repayment plan involves a complex calculation resulting from the sum of the capital lent plus the interest charges accrued from the operation. For this reason, regardless of the type of repayment and whether the mortgage interest rate is fixed, variable or mixed, it becomes necessary to draw up what is known as the “mortgage repayment schedule”, which is essentially a detailed list of the terms and amounts for the repayment of the funds.
Having a thorough understanding of these schedules is important. Remember that a repayment installment (generally monthly) consists of a portion used to repay the capital which was lent (repayment) and another portion which is to pay the accrued interest. Therefore, you need to know what you are paying and how much you really have left to repay.