What Is a Mortgage?

Quick Answers

Most common term

30-year fixed

Min. down payment

3% conventional

Min. credit score

620 conventional

Closing timeline

30 to 60 days

A mortgage is a type of loan specifically used to purchase or maintain real estate. In a mortgage agreement, the borrower agrees to pay the lender over time, typically in a series of regular payments divided into principal and interest.

What makes a mortgage unique is that the property itself serves as collateral for the loan. This means that if the borrower stops making payments and defaults, the lender has the legal right to take possession of the property through a process known as foreclosure.

Mortgages are usually long-term commitments. The most common terms in the United States are 15-year and 30-year loans. The length of the term, along with the interest rate and the size of the down payment, determines the monthly payment amount and the total cost of the home.

Key Facts

Collateral: The home you purchase acts as security for the loan. If you fail to repay, the lender can seize the property.
Common Terms: 30-year mortgages offer lower monthly payments but cost more in total interest, while 15-year mortgages have higher payments but build equity faster.
Fixed vs. Variable: Fixed-rate mortgages keep the same interest rate for the entire term. Adjustable-rate mortgages (ARMs) have rates that can change over time.
Down Payments: While 20% is traditionally recommended to avoid private mortgage insurance (PMI), many programs allow down payments as low as 3% to 5%.

15-Year vs. 30-Year: A $300,000 Mortgage

30-year at 6.75%: $1,945.79/mo -- total interest paid: ~$400,500

15-year at 6.0% (shorter terms usually price lower): $2,531.57/mo -- total interest paid: ~$155,700

The 15-year costs $586/mo more, but saves roughly $244,800 in interest over the life of the loan

This is the core trade-off behind every mortgage term decision: a shorter term forces a higher monthly commitment in exchange for dramatically less interest paid overall. Neither is universally "better" -- it depends on whether your budget can absorb the higher payment.

Common Mortgage Mistakes

Choosing a 15-year term without stress-testing the payment: The example above shows a $586/mo jump. Committing to that payment without a cash buffer for job loss or emergencies can turn a smart interest-savings move into a real financial strain.
Forgetting that "mortgage payment" usually means more than principal and interest: Property taxes, homeowner's insurance, and often PMI are typically bundled into your monthly payment through escrow. The number a mortgage calculator shows for P&I alone is rarely your full monthly housing cost.

Frequently Asked Questions

What is the difference between a mortgage and a home loan?

Mortgage and home loan are used interchangeably. A mortgage is technically the legal agreement that gives the lender a claim on your property as collateral for the loan.

What credit score do I need for a mortgage?

Conventional loans typically require a minimum score of 620. FHA loans may accept scores as low as 580. The higher your score, the better rate you will qualify for.

How much can I borrow for a mortgage?

Lenders generally limit your total monthly housing costs to 28% of gross income and total debts to 43%. Use our mortgage calculator to estimate based on your specific income and debts.

What is the difference between a 15-year and 30-year mortgage?

A 15-year mortgage has higher monthly payments but far less total interest. A 30-year mortgage has lower payments but costs significantly more over time.