At it’s most basic level, lenders such as banks, pay interest on money they borrow at the Prime Rate, and then lend that borrowed money to potential home owers at a higher interest rate. The difference between what the lender collects in interest payments from the borrower, and the amount the lender had to pay for having borrowed the money in the first place, is the lender’s profit.
The various mortgage terms are essentially elements which lenders and borrowers use as negotiating points, each of which may be adjusted to be able to come to a mutually desireable mortgage loan. By adjusting the Term, Interest Rate, Payment Amounts, Payment Frequency, Rate Type (Fixed or Variable or Combo) and other elements, the total value of the mortgage loan may go up or down, and the key is to find a balance between what the borrower can afford and wants to pay, and the value of the investment to the lender.