What Is a Mortgage?
Quick Answer
A mortgage is a special loan from a bank that people use to buy a house. Since most houses cost hundreds of thousands of dollars, almost nobody can pay for one all at once. Instead, they borrow the money and pay it back a little each month for many years — usually 15 or 30 years — plus extra money called interest.
Explaining By Age Group
Ages 3-5 Simple Explanation
You know how your family lives in a house or an apartment? Houses cost a LOT of money — way more than what's in your piggy bank! Most families don't have enough money to buy a house all at once, so they get something called a mortgage to help.
A mortgage is when a bank gives your family a big bunch of money to buy a house. Then your family pays the bank back a little bit each month, for a really long time. It's like borrowing money from a friend, but it's a lot of money and it takes years and years to pay back.
Every month, your mom or dad makes a mortgage payment. That's the money they're giving back to the bank. They do this month after month after month, for so many years that by the time they're done paying, you might be a grownup yourself!
Once your family has paid all the money back to the bank, the house is really, truly theirs. No more payments! That's a very exciting day for families. Until then, the bank and your family sort of share the house.
Ages 6-8 More Detail
A mortgage is a loan that people use to buy a house. Houses are one of the most expensive things a person will ever buy — many cost $300,000, $500,000, or even more! Since most people don't have that much money saved up, they borrow it from a bank. That loan is called a mortgage.
Here's how it works. Let's say a family wants to buy a house that costs $300,000. They might save up $30,000 to pay upfront — that part is called a down payment. Then the bank lends them the other $270,000. The family pays the bank back a little each month, usually for 30 years.
But they don't just pay back the $270,000 they borrowed. The bank charges interest — extra money for letting the family borrow. Over 30 years, the family might end up paying $400,000 or more total for that $300,000 house. That's why mortgages are such a big deal.
Each monthly mortgage payment usually covers several things: part of the loan, interest to the bank, property taxes (money paid to the local government), and home insurance (which protects the house if something bad happens like a fire or storm).
If a family stops paying their mortgage, the bank can take the house back. That's called foreclosure, and it's very serious. That's why families think carefully about how much they can afford before taking on a mortgage. The monthly payment has to fit into their budget.
Ages 9-12 Full Explanation
A mortgage is a loan specifically designed for buying a home. Since the average house in the United States costs over $400,000, very few people can write a check for the full amount. Instead, they put down a portion of the price (called a down payment, usually 5-20%) and borrow the rest from a bank or mortgage lender. Then they pay it back monthly over 15 or 30 years.
The word 'mortgage' actually comes from old French and roughly translates to 'death pledge' — not because it's dangerous, but because the agreement 'dies' (ends) either when the loan is fully paid off or if the borrower fails to pay. It's been a part of homebuying for centuries and is how most families in America purchase their homes.
Interest is what makes a mortgage much more expensive than the home's sticker price. If you borrow $300,000 at 7% interest over 30 years, you'd pay roughly $418,000 in interest alone — on top of the $300,000 you borrowed. That means the house actually costs you about $718,000 total. Even a small change in the interest rate can mean tens of thousands of dollars over the life of the loan.
Your mortgage payment is typically split into four parts, often called PITI: Principal (the actual loan amount you're paying down), Interest (the bank's fee for lending you the money), Taxes (property taxes paid to your local government), and Insurance (which protects your home). When people say 'my mortgage is $2,000 a month,' they usually mean all four parts combined.
Getting a mortgage isn't automatic — you have to qualify. Banks look at your income, your savings, your credit score (how responsible you've been with money), and your existing debts. If the bank thinks you can't reliably make the payments, they'll either deny the loan or charge a higher interest rate. This is why having good money habits years before buying a house really matters.
A mortgage is the biggest financial commitment most people ever make. But for many families, it's worth it because instead of paying rent to a landlord — money you never see again — mortgage payments gradually build ownership. Once the mortgage is paid off, the house is yours. And if the house goes up in value over time, you've built wealth just by living in your home.
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Tips for Parents
A mortgage can be a challenging topic to discuss with your child. Here are some practical tips to help guide the conversation:
DO: Follow your child's lead. Let them ask questions at their own pace rather than overwhelming them with information they haven't asked for yet. If they seem satisfied with a simple answer, that's okay — they'll come back with more questions when they're ready.
DO: Use honest, age-appropriate language. You don't need to share every detail, but avoid making up stories or deflecting. Kids can sense when you're being evasive, and honesty builds trust.
DO: Validate their feelings. Whatever emotion your child has in response to learning about a mortgage, acknowledge it. Say things like 'It makes sense that you'd feel that way' or 'That's a really good question.'
DON'T: Don't dismiss their curiosity. Responses like 'You're too young for that' or 'Don't worry about it' can make children feel like their questions are wrong or shameful. If you're not ready to answer, say 'That's an important question. Let me think about the best way to explain it, and we'll talk about it tonight.'
DO: Create an ongoing dialogue. One conversation usually isn't enough. Let your child know that they can always come back to you with more questions about a mortgage. This makes them more likely to come to you rather than seeking potentially unreliable sources.
Common Follow-Up Questions Kids Ask
After discussing a mortgage, your child might also ask:
Why do people get a mortgage instead of just renting?
When you rent, your money goes to a landlord and you never own anything. When you pay a mortgage, part of each payment builds your ownership of the house. Over time, you own the home completely. Plus, homes often increase in value, so your house might be worth more when you sell it than what you paid. However, renting can be the better choice for people who aren't ready for the big commitment of homeownership.
What is a down payment?
A down payment is the amount of money you pay upfront when buying a house, before the mortgage covers the rest. It's usually 5% to 20% of the home's price. On a $300,000 house, that's $15,000 to $60,000. A bigger down payment means you borrow less and pay less interest over time.
How long does it take to pay off a mortgage?
Most mortgages last 15 or 30 years. A 30-year mortgage has lower monthly payments but costs more in total interest. A 15-year mortgage has higher monthly payments but saves a lot on interest. Some people also make extra payments to pay off their mortgage faster.
What happens if you can't pay your mortgage?
If you miss too many mortgage payments, the bank can take your house through a process called foreclosure. The bank then sells the house to get its money back. Foreclosure is very serious — it damages your credit score and you lose your home. That's why it's important to only borrow what you can realistically afford to repay.
Do your parents own the house while they're still paying the mortgage?
Sort of. Your parents have ownership rights — they can live there, make changes, and even sell it. But the bank holds a claim (called a lien) on the house until the mortgage is fully paid off. If payments stop, the bank can take the house. Once the last payment is made, the house fully belongs to your family.
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