Mortgage
Also called: home loan
A long-term loan secured against property — if you stop paying, the lender can take the house.
Two features define it: it runs for decades, and it is secured against the property.
The security is why mortgage rates are far lower than credit card rates — the lender has a fallback. It is also why a mortgage sits in a different category from other debt: the worst case is not a bad credit record but losing where you live.
Because the term is so long, small differences in rate become large in total. And because early payments are mostly interest, the balance barely moves for years — see amortisation for why that is arithmetic rather than unfairness.
Two things worth understanding before signing. What happens when a fixed period ends, since the rate afterwards is often materially higher and the payment can jump. And the total amount repayable, not just the monthly figure — extending the term lowers the payment while raising the total substantially.
A mortgage at a modest rate is not an emergency and does not deserve the urgency of consumer debt. Clear the expensive things first.
Words on this page
- Interest — The price of using someone else's money — paid by borrowers, earned by lenders.
- Amortisation — The schedule by which a loan is repaid, splitting each payment between interest and principal.
Related terms
Covered properly in Learn.
This term appears in the glossary of The Quiet Fortune, Volume II.