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A mortgage is a long-term loan that a borrower obtains from a bank, a loan company, an independent mortgage broker, a money-lender, or some other money-salesman. The borrower signs documents (many of them) at closing that basically promises the house to the lender if they borrower does not pay the loan according to schedule. You give the loan company the right to foreclose on your home if you do not pay. They have a lien against the title of your home.

Because mortgage loans are usually very large, people often take a very long time to repay them. Historically, loans either came in 15 and 30 year term lengths. That is, over the course of 30 years a borrow returns all the money to the lender as well as interest. When the loan is paid off, the bank releases the lien on your property.

Often the monthly payment not only includes interest payments and small amount of loan principle, but also payments to an escrow account for property taxes and insurance. The bank wants to make sure that "their" asset is protected against government seizure and hazards like flood and fire. So, they take these payments up front. The advantage is that you do not have to worry about large tax or insurance bills coming due. The bank will take care of these payments for you. Also, if your mortgage was not a conventional loan, a loan in which you paid 20% down payment, you may be subject to PMI payments. The bank will also collect this fee in your monthly mortgage payment.

So, if your mortgage payment is $2000 dollars per month, the majority of that payment goes to interest, taxes, and fees. Only a small portion actually goes towards paying off your principle... the original amount of the loan. It pays to be a bank!