Mortgage

A mortgage is a loan secured by real property, usually a home: the borrower pledges the property to the lender, who may take it if the money borrowed and its interest are not repaid.

In the United States, the Consumer Financial Protection Bureau describes a mortgage as an agreement between a borrower and a lender that gives the lender the right to take the property if the borrowed money plus interest is not repaid, and notes that such loans are used both to buy a home and to borrow against the value of a home already owned. This entry describes how mortgages work, chiefly in the United States, where most of the sources below come from; the law and the usual terms differ from country to country.

The word

The word came into English in the 15th century. Merriam-Webster traces it through Middle English morgage to Anglo-French mortgage, from mort, "dead" (Latin mortuus), and gage, "pledge": literally a "dead pledge".

In legal usage the word covers more than the loan itself. Merriam-Webster's legal definitions include a conveyance of title to property, or a lien against it, given to secure an obligation such as a debt and ended when the obligation is satisfied, as well as the document that sets out those terms. A lien is a legal claim on property as security for a debt. In everyday speech, "mortgage" usually means the loan.

How a mortgage works

A mortgage has a few basic parts:

• Principal: the amount borrowed.
• Interest: the price of borrowing, expressed as an annual rate on the amount still owed.
• Term: the length of time over which the loan is repaid, such as 15 or 30 years.
• Security: the property itself, which the lender may take if the loan is not repaid.

When comparing loans, the CFPB lists the size of the loan, the interest rate and any points, the closing costs including the lender's fees, and the Annual Percentage Rate (APR) among the key features.

Amortization

Most home loans in the United States today are amortizing. The CFPB defines amortization as paying off a loan with regular payments, so that the amount owed goes down with each payment. Each monthly payment covers that month's interest, and the rest reduces the principal. The same page describes the opposite case, negative amortization, in which the amount owed rises even though payments are made, because the payments do not cover the interest.

The arithmetic shows why the early years of a long loan go mostly to interest. The standard payment formula for a fully amortizing loan is

payment = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)

where P is the principal, r is the monthly interest rate (the annual rate divided by 12) and n is the number of monthly payments. As an illustration only, take a loan of $300,000 at 7.18 percent a year, the average 30-year fixed rate in Freddie Mac's survey for the week to 5 November 2026:

• Over 30 years (360 payments), the monthly payment works out to about $2,032. The first month's interest is $300,000 × 0.0718 ÷ 12 = $1,795, so only about $237 of the first payment reduces the principal. Over the full term the payments total about $731,600, of which about $431,600 is interest. After ten years about $258,500 is still owed.
• Over 15 years (180 payments) at that week's average 15-year rate of 6.57 percent, the payment is about $2,625 a month, and the payments total about $472,500, of which about $172,500 is interest.

A shorter term means a larger monthly payment but much less interest in total. These figures leave out taxes, insurance and fees.

Fixed and adjustable rates

With a fixed-rate mortgage, in the CFPB's words, the interest rate is set when the loan is taken out and does not change. With an adjustable-rate mortgage (ARM), the rate can go up or down. Part of an ARM's rate is tied to a broader measure of interest rates, called an index, so the payment rises when that index rises; some ARMs cap how far the rate can move at each change or over the life of the loan.

Down payment, insurance and escrow

The borrower usually pays part of the price up front, the down payment, and borrows the rest. In the United States, a borrower with a conventional loan (one not backed by a government agency) and a down payment of less than 20 percent of the purchase price may be required to buy private mortgage insurance (PMI), which protects the lender, not the borrower, if the borrower stops paying.

Many lenders also collect money each month for property taxes and homeowner's insurance. It goes into an escrow account (sometimes called an impound account), which the CFPB describes as a fund the lender sets up to pay certain property-related expenses, so that large yearly bills are paid in small monthly amounts. The mortgage servicer, the company that collects payments on the loan, manages the account and pays those bills.

When payments stop

If the borrower does not repay, the lender can use its right to take the property. This is called foreclosure, and its rules and steps differ by state and by country.

History in the United States

Before the 1930s

Early in the 20th century, American home loans looked very different. According to the Federal Housing Administration's own history, mortgage loans were limited to 50 percent of the property's market value, with repayment spread over three to five years and ending in a balloon payment, meaning a large final payment of the remaining balance. The same page says that only 1 in 10 households owned homes at the time.

Terms varied by lender. A 2008 Federal Reserve Bank of St. Louis working paper by David C. Wheelock notes that savings and loan associations typically made long-term, amortizing loans, while banks and life insurance companies often made short-term loans with little or no amortization that were usually refinanced when they came due. That worked while incomes and house prices rose in the 1920s, but became next to impossible in the Depression.

The Great Depression

Falling incomes and property values, together with short-term loans that could no longer be refinanced, led to a wave of defaults. Wheelock cites an estimate that as of 1 January 1934 about half of U.S. home mortgages were delinquent, and some 1,000 home loans were foreclosed every business day. Between 1933 and 1934, 27 states imposed moratoria on foreclosures, according to the same paper.

The federal government responded with new institutions:

• The Home Owners' Loan Corporation (HOLC), created in 1933, bought delinquent home loans from lenders and refinanced them. Wheelock reports that it restructured them as 15-year amortizing loans at a fixed interest rate of at most 5 percent, limited to 80 percent of a property's appraised value. By June 1936 it had made just over one million loans totaling $3.1 billion, refinancing about 10 percent of all nonfarm, owner-occupied homes in the country and about 20 percent of those with a mortgage. It foreclosed on fewer than 20 percent of the loans it refinanced, and it was liquidated in 1951.
• The Federal Housing Administration (FHA) was created by Congress in 1934 to insure mortgages made by approved lenders. Its insurance protects lenders against losses, which makes them more willing to lend. As of November 2026, the FHA says it has insured over 50 million mortgages since 1934.
• The Federal National Mortgage Association, later known as Fannie Mae, was established in 1938 to create a secondary mortgage market by buying FHA-insured loans, so that lenders could sell loans they had made and lend again. It was chartered by Congress as a government-sponsored private corporation in 1968.

Wheelock observes that these agencies encouraged the long-term, amortizing loan that became the standard American mortgage.

The subprime mortgage crisis

The next great mortgage crisis came in 2007 to 2010. In a Federal Reserve History essay, John V. Duca explains that before the 2000s lenders usually turned down high-risk borrowers, and homeownership fluctuated around 65 percent. In the early and mid-2000s, high-risk ("subprime") mortgages became widely available from lenders who pooled loans and sold them to investors, with private-label mortgage-backed securities (securities backed by pools of mortgages) providing most of the funding. When house prices fell, many borrowers could not sell for enough to repay their loans, losses mounted, and that funding collapsed.

The government's response, as Duca describes it, included encouraging lenders to modify troubled loans instead of foreclosing, a large expansion of FHA lending, whose share of newly issued mortgages rose from under 10 percent to over 40 percent, and Federal Reserve purchases of long-term Treasury bonds and mortgage-backed securities. On 6 September 2008, the Federal Housing Finance Agency placed Fannie Mae and Freddie Mac into conservatorship, citing a substantial deterioration in the housing markets that had severely damaged each company's finances. As of November 2026, the FHFA's conservatorship page describes it as the two companies' conservator.

Mortgages in the economy

Mortgages are the largest form of household borrowing in the United States. The Federal Reserve Bank of New York reported in August 2026 that mortgage balances totaled $13.1 trillion at the end of June 2026, out of total household debt of $18.8 trillion, or about 70 percent. The same report counted $505 billion of new mortgages made in the second quarter of 2026.

Mortgage rates move with wider interest rates. Freddie Mac's Primary Mortgage Market Survey, which has reported the average 30-year fixed rate since April 1971, put that average at 7.18 percent for the week to 5 November 2026, down from 7.24 percent a week earlier and up from 6.22 percent a year before. The 15-year fixed rate averaged 6.57 percent that week. Since November 2022 the survey has been based on applications submitted to Freddie Mac by lenders, rather than on a survey of lenders.

Sources

• Consumer Financial Protection Bureau, "What is a mortgage?" (last reviewed 28 May 2024). consumerfinance.gov/ask-cfpb/what-is-a-mortgage-en-99/
• Consumer Financial Protection Bureau, "What is negative amortization?" (last reviewed 11 September 2024). consumerfinance.gov/ask-cfpb/what-is-amortization-en-103/
• Consumer Financial Protection Bureau, "What is the difference between a fixed-rate and adjustable-rate mortgage (ARM) loan?" (read November 2026). consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-fixed…
• Consumer Financial Protection Bureau, "What is private mortgage insurance?" (last reviewed 28 August 2023). consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-…
• Consumer Financial Protection Bureau, "What is an escrow or impound account?" (read November 2026). consumerfinance.gov/ask-cfpb/what-is-an-escrow-or-impound-account-e…
• Merriam-Webster, "Mortgage" (read November 2026). merriam-webster.com/dictionary/mortgage
• U.S. Department of Housing and Urban Development, "Federal Housing Administration History" (read November 2026). hud.gov/aboutus/fhahistory
• David C. Wheelock, "Government Response to Home Mortgage Distress: Lessons from the Great Depression", Federal Reserve Bank of St. Louis Working Paper 2008-038A, October 2008. doi.org/10.20955/wp.2008.038
• John V. Duca, "Subprime Mortgage Crisis", Federal Reserve History, 22 November 2013. federalreservehistory.org/essays/subprime-mortgage-crisis
• Federal Housing Finance Agency, "Conservatorship" (read November 2026). fhfa.gov/conservatorship
• Federal Reserve Bank of New York, "Household Debt and Credit Report", press release, 11 August 2026. newyorkfed.org/newsevents/news/research/2026/20260811
• Freddie Mac, "Primary Mortgage Market Survey" (results as of 5 November 2026). freddiemac.com/pmms