Mortgage.
In plain English
A mortgage is a loan you use to buy property, paid back over many years in monthly installments. What makes it a mortgage rather than a regular loan is the collateral: the home secures the debt, so if you stop paying, the lender can foreclose and take the property. Each monthly payment is usually split into principal (the amount you borrowed) and interest (the lender's charge for the loan), and it often also includes property taxes and homeowners insurance held in escrow. Over a typical 30-year term, the interest alone can add up to a large share of what you pay, which is why the rate and term matter so much.
01Why it matters
A mortgage is the largest loan most people ever take, and a small difference in the interest rate changes the total cost by tens of thousands of dollars over 30 years. Understanding how it is built helps you avoid paying far more than you needed to.
02The math, step by step
Borrow $300,000 at a 6.5% fixed rate over 30 years and the principal-and-interest payment is roughly $1,896 a month. Over the full term you would pay about $382,000 in interest on top of the $300,000 you borrowed, so the house effectively costs you around $682,000. Drop the rate to 5.5% and you save well over $60,000 in interest across those 30 years. The 6.5% figure here is close to the Freddie Mac national 30-year fixed average of 6.52% in mid-June 2026; rates change weekly, so use current quotes.
03What this is NOT
A mortgage is not rent and the payment is not all interest. Part of every payment pays down what you owe and builds equity you keep, which is the key difference from rent. Early on, though, most of the payment goes to interest, so equity builds slowly at first.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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