What Is a Mortgage?
In plain English
A mortgage is a secured loan in which a lender provides funds to buy real estate and the borrower pledges the property as collateral. Monthly payments cover principal repayment and interest. If the borrower stops paying, the lender can foreclose and take ownership of the property to recover the loan balance.
How Does a Mortgage Work?
When you get a mortgage, the lender pays the seller and you repay the lender over time. Each monthly payment is split between interest owed and principal reduction — a process called amortization. In the early years most of the payment is interest; by the end, most goes toward principal. Your home secures the debt throughout.
What Types of Mortgages Are Available?
The most common types are fixed-rate mortgages, where the interest rate never changes, and adjustable-rate mortgages, where the rate can shift after an initial period. Government-backed options include FHA loans (low down payments), VA loans (veterans only), and USDA loans (rural areas). Each has different qualification requirements and cost structures.
What Factors Determine Your Mortgage Rate?
Lenders set your rate based on credit score, down payment size, loan type, loan term, and prevailing market rates. A higher credit score and larger down payment typically earn a lower rate. Shopping at least three lenders and comparing APRs — not just rates — helps you find the best total cost.
Frequently asked questions
What credit score do I need to get a mortgage?
Conventional loans typically require a 620 minimum, while FHA loans accept scores as low as 580 with a 3.5% down payment. Higher scores qualify for better rates, potentially saving tens of thousands over the life of the loan.
Can I pay off my mortgage early?
Yes. Most modern mortgages have no prepayment penalty. Making extra principal payments reduces your balance faster, saves interest, and can shorten the loan term significantly.
What is mortgage preapproval?
Preapproval is a lender's written commitment to lend up to a specific amount based on a review of your income, assets, and credit. It strengthens your offer with sellers and clarifies your real budget before you shop.
Keep exploring
Related terms
Fixed-Rate Mortgage
A fixed-rate mortgage locks in your interest rate for the entire loan term, so your principal and interest payment never changes. It offers predictability and protection against rising rates.
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage starts with a fixed interest rate for an initial period, then adjusts periodically based on a market index. ARMs often have lower starting rates but carry the risk of rising payments.
Down Payment
A down payment is the upfront cash you pay toward a home purchase, with the mortgage covering the rest. The larger your down payment, the less you borrow and the lower your monthly payments.
Closing Costs
Closing costs are the fees and expenses paid at the end of a real estate transaction, on top of the down payment. They typically range from 2% to 5% of the loan amount.
Refinancing
Refinancing replaces your existing mortgage with a new one, typically to get a lower interest rate or change loan terms. It can reduce monthly payments or help you pay off your home faster.
Private Mortgage Insurance (PMI)
Private mortgage insurance protects the lender — not you — if you default on a conventional loan with less than 20% down. It adds a monthly cost until you build enough equity to cancel it.
Home Equity
Home equity is the portion of your home's value that you actually own, free of any mortgage debt. It grows as you pay down your loan and as your home appreciates in value.