Business
How does a mortgage work?
A mortgage works as a long-term loan used to buy a home, where the property itself is the collateral. You repay it in monthly installments over many years, covering both the amount borrowed and interest — and the lender can take the home if you don't pay.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how a mortgage works.
Step by step
- 1It's a large loan to buy property, repaid over 15–30 years.
- 2The home serves as collateral securing the loan.
- 3Each payment covers part of the principal plus interest.
- 4Early payments are mostly interest; later ones mostly principal.
- 5Missing payments can lead to foreclosure — losing the home.
Frequently asked questions
- How does a mortgage work?
- A lender pays for your home upfront; you repay them monthly over years, with interest, and they hold the home as security until it's paid off.
- Why are early mortgage payments mostly interest?
- Interest is charged on the remaining balance, which is largest at the start, so early payments cover mostly interest and little principal.
- What is foreclosure?
- If you stop paying, the lender can legally seize and sell the home to recover the money it lent.