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Mortgages & financing

Mortgage

Also called home loan, mortgage loan

In short

A mortgage is a loan used to buy real estate, secured by the property itself. If the borrower stops paying, the lender can take the property through foreclosure to recover what is owed.

Common terms
15 or 30 years
Secured by
The property
Rate types
Fixed or adjustable
If unpaid
Can lead to foreclosure

How a mortgage works

You borrow part of the purchase price and repay it with interest in monthly installments. The lender records a mortgage or deed of trust against the property, which gives it the right to foreclose if you default. Each payment covers interest and some principal through amortization, and many payments also include taxes and insurance (PITI).

Common loan types

  • Conventional: not government-backed; often requires PMI below 20% down.
  • FHA: government-insured, lower down payment, more flexible credit.
  • VA and USDA: government-backed programs for eligible veterans and rural buyers.
  • Jumbo: above conforming loan limits, which are set annually.

When a mortgage goes into default

After missed payments, the lender can start foreclosure, either through the courts (judicial) or outside them (non-judicial), depending on the state. Options such as loan modification, forbearance or reinstatement can stop the process.

The formula

Monthly principal and interest
M = P × r(1 + r)ⁿ(1 + r)ⁿ − 1
P
Loan amount
r
Monthly interest rate (annual rate ÷ 12)
n
Number of monthly payments (years × 12)
Try it in the Mortgage Calculator →
Example

A 30-year fixed mortgage

A buyer purchases a $400,000 home with $80,000 down and a $320,000, 30-year fixed mortgage at 6.5%. The principal and interest payment is about $2,023 a month. Over 30 years they would pay roughly $408,000 in interest if they never prepay or refinance.

Mortgage vs. Deed of Trust

Mortgage

A mortgage is a loan used to buy real estate, secured by the property itself. If the borrower stops paying, the lender can take the property through foreclosure to recover what is owed.

Deed of Trust

A deed of trust is a security instrument used instead of a mortgage in many states. The borrower gives a neutral trustee legal title as security for the loan until it is paid off.

The differenceBoth secure a home loan. A mortgage typically requires judicial foreclosure; a deed of trust uses a trustee and usually allows faster non-judicial foreclosure.

Frequently Asked Questions

Related terms

AmortizationMortgages & financingAmortization is the process of paying off a loan with regular, fixed payments over time. Early payments go mostly to interest; later payments go mostly to principal.PITIMortgages & financingPITI stands for principal, interest, taxes and insurance, the four parts of a typical monthly mortgage payment. Lenders use it to judge whether a borrower can afford a home.Mortgage Pre-ApprovalMortgages & financingA mortgage pre-approval is a lender's conditional commitment to lend up to a set amount, based on verified income, assets and credit. Sellers often expect one before accepting an offer.ForeclosureForeclosure processForeclosure is the legal process a lender uses to take back and sell a property after the borrower stops making mortgage payments, so the lender can recover what it is owed.RefinanceMortgages & financingTo refinance is to replace an existing mortgage with a new one, usually to get a lower rate, change the loan term, or take cash out of the home's equity.LienTitle & legalA lien is a legal claim against a property that secures a debt. It must usually be paid off before the property can be sold with clear title, and the creditor can force a sale in some cases.Debt-to-Income Ratio (DTI)Mortgages & financingDebt-to-income ratio (DTI) is the share of your gross monthly income that goes to debt payments. Lenders use it to decide how large a mortgage payment you can afford.Down PaymentMortgages & financingA down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.

Learn more in the knowledge base

How Much House Can You Afford?Guide · 6 min readThe right price is the one you can pay every month without strain and still keep savings for repairs and emergencies. This guide shows how lenders measure affordability, what they leave out, and how to build a budget that works for you.How to Get Pre-Approved for a MortgageGuide · 7 min readA pre-approval tells you, and the sellers you make offers to, how much a lender is prepared to lend after checking your income, assets and credit. This guide explains how it differs from pre-qualification, what to gather, how to compare lenders and what can change the answer before closing.How to Finance a Foreclosure or Distressed PropertyGuide · 7 min readDistressed properties are harder to finance than move-in-ready homes. Condition, timing and the seller's terms all limit which loans will work. This guide matches financing options to each kind of distressed purchase and explains the trade-offs.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.