What’s a Mortgage, and How Does It Actually Work?
So… What’s a Mortgage, and How Does It Actually Work?
If you’ve ever thought about buying a home, you’ve probably heard the word mortgage thrown around like it’s just common knowledge. But if you’re like most people, you might be thinking, “Okay… but what actually IS a mortgage? And how does it work?”
Let’s break it down—no banker jargon, no confusing charts—just real talk so you know exactly what’s going on when you decide to buy a place.
Here’s the Simple Version
A mortgage is basically a big loan you take out from a bank or lender so you can buy a house. Since most of us don’t have a spare few hundred grand lying around (and if you do—lunch is on you), the mortgage lets you pay for your home in smaller, monthly chunks over time.
The deal is: you borrow the money, you agree to pay it back with interest, and the lender keeps the right to take the house if you stop paying. That’s the “legal” part, but in day-to-day life, it’s just your house payment.
How It Works in Real Life
Here’s the play-by-play:
You apply for the loan – Show the lender your income, debts, credit score, and all the financial stuff they ask for.
They approve you for an amount – This is the max they’re willing to lend you (but we’ll talk about why you might not want to spend it all).
You put down some money upfront – That’s your down payment, and it could be as low as 3% depending on your loan type.
You sign the agreement – It’ll spell out your interest rate, monthly payment, and how long you’ll be paying.
You make monthly payments – Part of it goes toward the loan itself (the “principal”), part is interest, and the rest might cover property taxes and insurance.
A Few Terms You’ll Hear a Lot
Principal – The actual amount you borrowed.
Interest Rate – The cost of borrowing money.
PMI – Extra insurance you might pay if your down payment is small.
Escrow – Where the lender holds your tax and insurance money until it’s due.
Not All Mortgages Are the Same
Some are backed by the government, some aren’t. Some require a big down payment, others require nothing at all. You might hear terms like:
Conventional Loan – Standard bank loan, better rates if your credit is strong.
FHA Loan – Lower credit score okay, smaller down payment.
VA Loan – For veterans/military—no down payment.
USDA Loan – For rural/suburban buyers—no down payment.
Why This Matters Before You Buy
Understanding how a mortgage works means you can shop smart, avoid nasty surprises, and choose a payment that fits your life instead of stretching it too thin.
That’s why I use my MOVE Method with clients:
Map your budget
Organize your options
Verify the real monthly cost
Execute with confidence
Bottom line: A mortgage isn’t scary—it’s just a tool. When you know how it works, you get to call the shots. And if you’re ready to figure out your best path to homeownership, I’m here to make it simple.
Ted Canto
Branch Manager
M: (480) 650-8602O: (602) 362-4210
NMLS ID# 228393
