Mortgage basics: principal, equity and security
A mortgage is a loan secured against property. Principal is the amount borrowed; interest is the cost of borrowing.
Equity is your own contribution. Loan-to-value compares borrowing with the property value used by the lender; it differs from payment-to-income. Approval in principle is conditional, not cash already available. Include insurance, valuation, fees and purchase costs. Missed payments can put the secured property at risk. This lesson describes the Israeli context, not a loan approval.
A property priced at 2,000,000 and a loan of 1,200,000 give a 60% ratio in this example. Equity and additional costs are still needed.
List property price, equity, borrowing and additional costs separately.
Official source ↗Check your understanding
What is mortgage principal?
- The amount borrowed
- The value of all national assets
- The insurance premium
Answer and explanation
The amount borrowed. Principal is borrowing before interest.
A 600,000 loan against a 1,000,000 property gives what ratio?
- 6%
- 160%
- 60%
Answer and explanation
60%. 600,000 divided by 1,000,000 is 60%.
Continue learning
Budgeting for a house or an apartment — A full budget includes land or property, additional costs and work, not just the headline price.
Who builds the home? Contractors and supervisors — A contractor performs work. A turnkey contractor coordinates a delivery package defined by the contract and specification.
Contingency and construction cash flow — A contingency covers overruns; cash flow also checks when payments fall due and funds become available.