What Is a Mortgage?
A mortgage is a type of long-term loan commonly used to buy a home.
Homes cost a lot
A house can cost a large amount of money. Many people don't have enough saved to buy a house outright, so a mortgage lets them borrow money and repay it over a long period instead.
How it fits together
Not every home purchase requires a mortgage — some people do save enough to buy outright — but it's a very common way homes are bought.
Deposit and mortgage
A deposit is money the buyer contributes towards the purchase up front.
Interest and long repayments
Mortgages normally involve interest, so the borrower repays the money borrowed, plus interest, and potentially other costs. Mortgage repayments can continue for many years — which makes them a serious, long-term commitment connected to budgeting and planning ahead.
Owning sooner, owing longer
A mortgage can let someone own a home sooner than waiting to save the entire purchase price. In return, they take on a large, long-term debt and years of repayments.
Work out the mortgage
House: $400,000. Deposit: $80,000. How much money was borrowed?
$400,000 − $80,000 = $320,000 borrowed.
Why would the borrower need to make repayments?
Because the $320,000 is borrowed money — it needs to be paid back over time, plus interest.
This is an introductory financial literacy lesson, not advice about buying property. It's a good chance to explain a concept children may hear adults discussing.
Borrowing & Debt complete!
- Borrowing means using money now and repaying it later.
- Debt is money you owe.
- Repayments reduce debt.
- Interest can increase the cost of borrowing.
- Credit cards are a form of borrowing.
- Loans are borrowing agreements.
- Mortgages are long-term loans commonly used to buy homes.
Next up: there's another way people can use money for the future — investing.