Mortgage

A mortgage is a long-term loan secured against real property. The borrower agrees to a series of fixed monthly payments; the lender holds a lien on the property until the loan is fully repaid. If the borrower defaults the lender can foreclose and sell the property to recover the outstanding balance.

The math is the standard amortising-loan formula. Given loan amount P, monthly rate r (annual rate divided by 12), and term n months, the monthly payment is:

M = P · r / (1 − (1 + r)^−n)

In a typical 30-year fixed-rate mortgage, early payments are dominated by interest and late payments by principal. The crossover happens around year 15-18 depending on rate. This front-loaded interest pattern is the reason refinancing or selling early can be expensive relative to the total interest you’d pay over the full term.

Adjustable-rate mortgages (ARMs) replace the fixed rate with one that resets periodically against an index plus a margin. Interest-only mortgages defer principal payments for a fixed initial period. Both trade certainty for cash-flow flexibility.

Use our mortgage calculator for the monthly-payment math, or our 15-year vs 30-year guide for the term-choice question.

Conforming vs jumbo vs government-backed: US mortgages fall into three regulatory buckets that affect the rate, down-payment minimum, and qualification standards. Conforming loans meet Fannie Mae / Freddie Mac standards (loan limit ~$766,550 in 2024 for most counties, higher in high-cost areas) and get the most favourable rates because they can be securitised. Jumbo loans exceed the conforming limit and carry slightly higher rates plus stricter income and reserve requirements. Government-backed loans — FHA (up to 96.5% LTV with relaxed credit standards), VA (zero down for qualifying veterans), USDA (rural areas) — offer favourable terms in exchange for upfront and ongoing guarantee fees. Most first-time-buyer programmes use one of the three government tracks.

International mortgage structures differ substantially: the 30-year fixed-rate mortgage with unrestricted prepayment is largely an American innovation. UK mortgages typically fix the rate for 2-5 years then revert to a variable rate; Canadian mortgages amortise over 25-30 years but fix the rate for 5 years before mandatory renewal; German mortgages often run on a fixed-rate for 10-15 years with significant prepayment penalties. The 30-year fixed US mortgage exists because Fannie Mae and Freddie Mac purchase and securitise the long-rate risk away from individual lenders. Most other countries lack a comparable government-sponsored secondary-market structure, so private lenders cap their rate exposure with shorter terms. Reference: CFPB — Mortgage loan options.