Mortgage
Definition
A loan used to purchase real estate, where the property itself serves as collateral for the debt.
Formula
Monthly Payment = P[r(1+r)^n] / [(1+r)^n - 1]A mortgage is a secured loan specifically designed for purchasing real property. The borrower agrees to repay the loan over a set term, typically 15 or 30 years, with the property serving as collateral. If the borrower defaults, the lender can foreclose on the property.
Mortgages come in several types: conventional loans (not backed by the government), FHA loans (insured by the Federal Housing Administration with lower down payment requirements), VA loans (for military service members with no down payment), and USDA loans (for rural properties). Each type has different qualification requirements and terms.
The monthly mortgage payment typically includes four components known as PITI: Principal, Interest, Taxes, and Insurance. Understanding the total cost of a mortgage, including closing costs, PMI, and interest over the full term, is essential for making the largest financial decision most people will ever face.
Related Calculators
Mortgage Calculator
Calculate mortgage payments with taxes, insurance, PMI, and amortization
Home Affordability Calculator
Calculate how much house you can afford based on income, debts, and down payment using the 28/36 rule
Amortization Calculator
Generate detailed loan amortization schedules showing principal, interest, and balance for each payment
Related Terms
Amortization
financeThe process of spreading a loan into a series of fixed payments over time, where each payment covers both interest and principal.
Escrow
financeA financial arrangement where a third party holds and manages funds or documents on behalf of two transacting parties until specific conditions are met.
PMI (Private Mortgage Insurance)
financeInsurance required by lenders when a homebuyer makes a down payment of less than 20%, protecting the lender against borrower default.
Fixed Rate
financeAn interest rate that remains constant throughout the entire term of a loan or investment, providing predictable payments.
Related Articles
How to Calculate Mortgage Payments: Complete Guide
Learn how to calculate your monthly mortgage payment with the amortization formula. Includes examples, tips for getting lower rates, and a free calculator.
Compound Interest Explained: How Your Money Grows Exponentially
Understand compound interest and how it makes your money grow exponentially. Learn the formula, see real examples, and discover strategies to maximize compound growth.
How to Pay Off Debt Fast: Snowball vs Avalanche Method
Learn the two proven strategies to pay off debt fast. Compare the debt snowball and debt avalanche methods with real examples and find which approach works best for you.
How to Calculate Net Worth: Assets, Liabilities & Benchmarks
Learn how to calculate your net worth step by step. Discover what to include as assets and liabilities, and see how your net worth compares to others your age.