What is a mortgage and how does it work?

A mortgage is a loan provided by a lender, such as a bank or a financial institution, that allows an individual to buy a property, such as a house or a flat. The mortgage is secured by the property, which means that if the borrower fails to repay the loan, the lender has the right to foreclose on the property and sell it to recover their money.

When a borrower takes out a mortgage, they agree to make regular payments, typically monthly, to the lender for a set period of time, usually 15 or 30 years. These payments include both the principal amount borrowed and the interest charged by the lender. The interest rate can be fixed or adjustable, and it is usually based on the borrower's credit score and the overall state of the economy.

Over time, as the borrower makes their monthly payments, they will build up equity in the property, which is the difference between the value of the property and the outstanding amount of the mortgage. Once the mortgage is fully paid off, the borrower owns the property outright.