What is Mortgage (Explained Simply)

In Simple Words

A mortgage is a special kind of loan that helps people buy a home. Most people don’t have enough money to pay for a house all at once, so they borrow money from a bank or another lender. In return, they promise to pay back the loan over many years, usually with extra money called interest (the fee you pay for borrowing money).

When you take out a mortgage, the house itself acts as a promise or security for the loan. This means if you stop making payments, the bank has the right to take the house back and sell it to get their money. Once you finish paying off the mortgage, the house is completely yours.

Real Example

Imagine Sarah wants to buy a small house that costs $200,000. She has saved $40,000, but she still needs $160,000. She goes to a bank and asks for a mortgage. The bank agrees to lend her the $160,000, and Sarah promises to pay it back over 30 years, a little bit every month.

Each month, Sarah pays both part of the money she borrowed (called the principal) and some extra money (the interest) to the bank. If she keeps up with her payments, she can live in her home while she’s paying for it. After 30 years, the mortgage is fully paid off, and the house belongs to her completely.

Why It Matters

Understanding mortgages is important because a house is often the biggest purchase people make in their lives. Knowing how a mortgage works helps you make smart choices about how much you can afford, how long you want to pay, and how much it will really cost in the end.

If you don’t understand how mortgages work, you might borrow too much or choose a bad deal, which can lead to financial stress or even losing your home. Learning the basics gives you control and confidence when making big money decisions.

Key Points to Remember

• A mortgage is a long-term loan used to buy a home.
• You pay it back over time, usually with interest.
• The house itself is the bank’s security until you finish paying.
• Understanding how mortgages work helps you make wise financial decisions and protect your home.