Mortgages Explained

A mortgage is a loan specifically for buying a home. It's probably the biggest financial commitment most people ever make.

How it works:

1. You save up a down payment (usually 10-20% of the home price)

2. A bank lends you the rest (the mortgage)

3. You pay it back monthly over 15-30 years

4. The house is collateral — if you stop paying, the bank can take it

Example: A $300,000 house:

That's amortization — each monthly payment is split between principal (the actual loan) and interest. Early on, most of your payment is interest. Over time, more goes to principal.

Why it's still worth it: While you're paying the mortgage, the house usually increases in value. A $300,000 house might be worth $500,000 in 15 years. Plus, you need somewhere to live anyway — would you rather pay rent (which builds nothing) or a mortgage (which builds ownership)?

The Rabbit family wanted a beautiful burrow. It cost 1,000 carrot coins! They only had 200.

The Wise Owl Bank said, "We'll pay the rest. You move in now, and pay us back a little each month for 30 years."

Every month, the Rabbits paid 5 carrot coins. Some went to pay back the loan, and some went to the bank as a thank-you for lending the money (that's interest!).

After 30 years of payments, the Rabbits owned their burrow completely. No more monthly payments!

A mortgage is a super big, super long loan — just for buying a house. Most families use one because houses cost so much money that almost nobody can pay all at once.