A loan you use to buy a home, where the home itself is the collateral. You pay it back monthly over a set number of years — usually 30.
A mortgage is the loan that makes buying a home possible for most people. The lender gives you the money to buy the house, and you pay it back over time — typically 30 years, sometimes 15 or 20. The house itself secures the loan, which is why mortgage rates are lower than credit cards or personal loans. If you stop paying, the lender can foreclose and take the home back.
Every monthly mortgage payment usually has four parts, called PITI: Principal (the money you borrowed), Interest (what the lender charges you for the loan), Taxes (property taxes), and Insurance (homeowners insurance). Most lenders collect taxes and insurance with your payment and hold them in an escrow account, then pay the bills on your behalf when they come due.
Example
If you buy a $400,000 home with $80,000 down, your mortgage is $320,000. At a 6.5% interest rate on a 30-year fixed loan, your principal-and-interest payment is about $2,022 per month.
Also known as
home loan, house loan
Source:
CFPB