What Is a Mortgage?

A mortgage is the loan that makes most home purchases possible — and the biggest financial contract most people ever sign. Here is how it actually works, without the jargon fog.

The one-sentence definition

A mortgage is a loan secured by real estate: you borrow money to buy a home, the home itself is the collateral, and if you stop paying, the lender can foreclose and sell the home to recover what it is owed. The word comes from the French for 'death pledge' — the pledge dies when the debt is paid or the property is lost.

The moving parts

Principal — the amount borrowed (price minus down payment).
Interest — the lender's charge, set by your rate; see how it accumulates in the interest calculator.
Term — the repayment period, most commonly 30 or 15 years.
Amortization — the schedule that splits each payment between interest and principal; explore yours in the amortization calculator.
Escrow — the account your lender uses to collect and pay property taxes and insurance.
Equity — your ownership stake: home value minus what you owe. It grows through payments, appreciation, or both.

Who is who: lender, broker, servicer

The lender funds the loan. A broker shops multiple lenders on your behalf. After closing, a servicer (often a different company) collects payments and manages escrow — most loans are sold, so the name on your statement may change while your terms never do. Our guide to comparing lenders explains how each earns money and how to choose.

How much a mortgage really costs

Borrow $340,000 at 6.5% for 30 years and the payment is $2,149 a month — with another ~$500 for taxes and insurance. Over the full term you repay about $774,000 in principal and interest for a $340,000 loan. That is not a scandal; it is the price of spreading a huge purchase over three decades. Shorter terms, lower rates and extra principal all shrink it dramatically — the tools on this site exist to show you exactly how much, starting with the payment calculator.

The mortgage timeline

Pre-approval — the lender verifies your finances and commits to an amount. (Guide)
House hunting & offer — within the budget from the affordability calculator.
Application & Loan Estimate — official cost disclosure within 3 business days.
Processing & appraisal — the home is valued; your documents are verified.
Underwriting & clear to close — final approval.
Closing — sign, pay cash to close (down payment + closing costs), get the keys.
Servicing — monthly PITI payments for the life of the loan, or until you sell or refinance.

Frequently asked questions

What is the difference between a mortgage and a loan?

A mortgage is a specific kind of loan secured by real property, with the home as collateral and foreclosure as the lender's remedy. 'Loan' is the general category; the mortgage is the security agreement that pledges the house.

How much income do I need for a mortgage?

Lenders use debt-to-income ratios — housing under ~28% of gross income, total debts under ~36–45% depending on the program. A $95,000 income typically supports a home in the mid-$300,000s at current rates; the affordability calculator personalizes it.

Can I get a mortgage with bad credit?

Options exist: FHA loans accept scores from 580 (500 with 10% down), and some lenders offer manual underwriting. Expect higher rates and mortgage insurance. Improving your score first usually saves far more than it costs in time — see our credit score guide.

What happens if I miss mortgage payments?

After a grace period (~15 days) late fees apply; at 30+ days it reports to credit bureaus; servicers must generally wait until you are 120 days delinquent to start foreclosure. If you are struggling, contact your servicer early — forbearance and modification programs exist precisely for this.