Home loans are among the most commonly used financial tools in the world. If you're looking to take out a loan to purchase a house, refinance one, or do some remodeling, here are four concepts you should understand.

1. Interest

The interest on home loans is the money that a financial institution makes back to provide a profit motive and to compensate it for taking a risk. Interest is expressed as a percentage, usually as either an annual percentage rate or yield. APR is the simple interest that accrues in a year. Most home loans have much longer terms, and that's why you should look at the APY, a number that better reflects how much interest will compound, usually over 5, 10, 15, or 30 years.

Essentially, the APY-based interest is your cost of money. The principle for the loan is close to the amount you were going to pay even if you dropped a load of cash on the seller. The APY is what you're paying to the bank for the benefit of it loaning you the money.

2. Term

A loan's term is the amount of time, almost always in years, that you are expected to take to pay. You'll pay a designated amount per month for the specified number of years.

3. Closing

A loan doesn't become official until everyone is legally on board with the sale of the house. The term commonly used for this process is "closing," although it is sometimes called a "settlement." A loan doesn't close until all parties to the deal sign the appropriate documents.

Upon closing, the bank transfers the sale price to the seller, and the seller usually transfers the title for the property to the bank. Your bank will retain claim to the property title until the loan is paid in full. From that point forward, all of your dealings are with your bank. This part doesn't apply if you currently own the house and are taking a loan out against its value. You and the bank will usually be the only parties to the loan in that case.

4. Title

The title for a property is a legal document that's maintained in the county registry wherever the house is located. It states basic information about the property, including which lot it occupies in the county and who currently holds the title. When you pay off the loan, the bank will transfer the title to you, giving you full legal possession of the property.

Learn more about the process by contacting home loan providers.