mortgage
A loan used to purchase real estate, secured by the property itself as collateral.
Example
“They got a 30-year mortgage at 4% interest to buy their first home.”
Memory Tip
MORT-gage — mort means death. The pledge (debt) dies when you finally pay it off.
Why It Matters
A mortgage makes homeownership accessible by spreading the cost over decades but it also means paying significantly more than the purchase price in total. Understanding mortgage mechanics including how interest front-loading works helps you make smarter decisions about down payments loan terms and whether to pay extra toward principal.
Common Misconception
Many homeowners think their monthly payment is mostly reducing what they owe. In the early years of a 30-year mortgage the vast majority of each payment is interest. On a $400,000 mortgage at 6.5% the first payment includes about $2,167 in interest and only $361 reducing the actual loan balance.
In Practice
Choosing a 15-year mortgage instead of a 30-year on a $300,000 loan at 6% means higher monthly payments but saves approximately $130,000 in total interest. Making one extra mortgage payment per year on a 30-year loan can shave 4-6 years off the loan term and save tens of thousands in interest over the life of the loan.
Etymology
From Old French 'mort gage' meaning 'dead pledge' — the pledge (loan) dies when paid off or when the property is taken.
Common Misspellings
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