A mortgage is a special type of loan that people use to buy a house or building. Since most people don't have enough money saved to pay for an entire house at once (houses typically cost hundreds of thousands of dollars), a bank lends them the money. The buyer then pays back that loan, plus interest, over many years, often 15 or 30 years.

Here's what makes a mortgage different from other loans: the house itself serves as collateral. That means if the borrower stops making their monthly mortgage payments, the bank can take ownership of the house through a legal process called foreclosure. This arrangement protects the bank while allowing families to own homes they couldn't otherwise afford.

When someone says they're paying off their mortgage, they mean they're gradually reducing what they owe the bank with each monthly payment. Once the mortgage is completely paid off, they own the house outright. Many adults consider the day they make their final mortgage payment a major life milestone, like a financial graduation day after years of responsibility.

The word also appears in the phrase mortgage rate, which refers to the interest percentage the bank charges for lending the money. Even small differences in mortgage rates can mean tens of thousands of dollars over the life of the loan.