How Mortgages Work

A mortgage is a loan secured by the property itself. If you stop paying, the bank takes the house — that's the collateral. But beyond that basic deal, the mechanics matter.

Your monthly payment has four parts, called PITI: Principal (loan repayment), Interest (bank's profit), Taxes (property taxes), and Insurance.

The tricky part is amortization. Your payment stays the same each month, but the split between principal and interest shifts dramatically over time. Early on, you're mostly paying interest. By year 25, you're mostly paying down the loan.