A mortgage is a loan that helps people buy a home without paying the full price upfront. The home itself acts as collateral for the loan. This means the lender has a legal claim on the property until the mortgage is fully paid.
Most buyers repay the mortgage through monthly payments over many years. “It’s what makes homeownership possible for most people,” said Debbie Calixto, a sales manager at mortgage lender loanDepot in Indian Wells, California. Calixto said the lender provides the money to buy the home, which the borrower then repays over time, according to the USA Today.
What does a mortgage payment include?
Most mortgages require monthly payments for a fixed period, usually 15 or 30 years. The payment generally includes principal and interest.It can also include property taxes and homeowners insurance, often grouped together as PITI.
Roland Chow, a financial planner and portfolio manager at Optura Advisors in Burlingame, California, said that if a borrower cannot repay the loan, the lender can take the home. This is why buyers need to look at the full monthly cost before deciding how much house they can afford.
Principal is the amount of money borrowed from the lender. When a homeowner makes a payment toward principal, the amount still owed on the mortgage goes down. Paying down principal also helps build equity in the home. Interest is different. It is the fee charged by the lender for allowing the borrower to use the money. Interest is charged on the remaining loan balance and does not reduce the amount owed, according to the USA Today.
Home costs go beyond the mortgage
Buyers should not look only at their principal and interest payment. Property taxes can add a large amount to the monthly bill, depending on where the home is located. Lenders often collect money for property taxes each month and keep it in an escrow account until the bill is due.
Steven Glick, a licensed mortgage loan officer and director of mortgage sales at Ziffy, said buyers often underestimate their real monthly payment by focusing only on principal and interest. Homeowners insurance is another major cost, according to the USA Today.
It protects the home against damage and losses, and the premium is often collected through escrow. Standard homeowners insurance policies typically cost about $1,800 to $3,600 a year, although costs can be higher in high-risk areas such as Florida and parts of California.
How much should you put down?
The down payment is the money the buyer pays toward the home upfront. Many buyers put down between 3% and 20% of the purchase price. Buyers with a conventional mortgage who put down less than 20% usually have to pay private mortgage insurance, or PMI. PMI is an additional cost on top of the regular mortgage payment. Glick said PMI is typically about 0.5% to 1% of the loan amount each year.
How fixed-rate mortgages work
With a fixed-rate mortgage, the interest rate agreed to when the loan closes generally stays the same throughout the loan. This makes monthly principal-and-interest payments easier to plan for.
The 30-year fixed mortgage is popular because it usually gives buyers a lower required monthly payment than a shorter loan. Calixto said many buyers choose a 30-year fixed mortgage and make extra payments when their budget allows, according to the USA Today.
How adjustable-rate mortgages work
An adjustable-rate mortgage, or ARM, works differently. The interest rate is fixed for an initial period, commonly five, seven or 10 years. After that period, the rate can change based on market conditions. Calixto said ARMs can make sense for buyers who expect to move, refinance or have higher income before the initial rate period ends. Buyers considering an ARM need to understand that their future payments can change after the initial period.
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Government-backed mortgage programs are designed to help borrowers who may not fit easily into conventional financing. Glick said there are three major government-backed programs that help fill gaps in the mortgage market, according to the USA Today.
Federal Housing Administration, or FHA, loans can be an option for buyers with lower credit scores, limited savings or higher debt. Glick said a borrower can qualify for an FHA loan with a 580 FICO score and a 3.5% down payment. He said borrowers with scores as low as 500 may qualify with a 10% down payment. The exact costs and qualification requirements still depend on the borrower’s situation.
Department of Veterans Affairs, or VA, loans are available to eligible veterans, active-duty service members and certain surviving spouses. Calixto said VA loans can often be taken with no down payment, according to the USA Today. They can also come without monthly mortgage insurance. Eligibility requirements apply, so not every homebuyer can use a VA loan.
United States Department of Agriculture, or USDA, loans are available for homes in eligible rural and some suburban areas. Chow said these loans can require no down payment for qualifying borrowers. They are generally aimed at lower-income applicants who meet the program’s requirements.
What affects mortgage rates?
Mortgage rates are not based only on the individual buyer. Inflation, Federal Reserve policy and movements in the bond market can push mortgage rates higher or lower. Glick said these are market factors that borrowers cannot control. The type of mortgage also matters because conventional, government-backed and jumbo loans are priced differently.
Personal financial details can also affect the mortgage rate a lender offers. A higher credit score can help a borrower get a lower rate. Glick said the difference between a 680 and 760 FICO score could mean a rate difference of about 0.50 to 0.75 percentage point, according to USA Today. This could save the borrower thousands of dollars over the life of the loan.
So, improving your credit score before applying for a mortgage may help lower your borrowing costs. A bigger down payment can also help. Lenders may see a larger down payment as a sign that the borrower is taking less risk. This can sometimes lead to better loan terms. However, buyers should not put all their money into the down payment. They should keep some cash for closing costs, emergencies and other expenses.
Mortgage rates in September 2026
Mortgage rates can make a major difference to a homeowner’s monthly payment and total interest cost. In September 2026, the average 15-year fixed mortgage rate was about 6.28%, while the average 30-year fixed rate was about 6.95%, according to Freddie Mac.
A shorter 15-year mortgage generally has a higher monthly payment but costs less in total interest than a 30-year loan. Buyers should compare the rate and the full loan cost rather than looking at the monthly payment alone.
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Compare mortgage lenders
Buyers do not have to take the first mortgage offer they get. Different lenders may offer different interest rates, fees and loan terms. Comparing offers from different lenders can help buyers find the option that works best for them. Online mortgage brokers like LendingTree can also help compare offers.
Most mortgages last for 15, 20 or 30 years. A 30-year mortgage is the most common choice. A longer loan usually means lower monthly payments. However, the borrower pays interest for a longer time, so the total interest paid can be higher. A shorter loan usually has higher monthly payments. But the borrower pays off the loan faster and usually pays less interest in total.
How much home can you afford?
Experts recommend starting the mortgage process several months before buying a home. This gives buyers time to improve their credit score, reduce debt and save more money. It can also give borrowers more time to compare lenders and mortgage options. Calixto said preparing early can put buyers in a stronger position to get a better rate, according to the USA Today.
Buyers should not decide what they can afford based only on the home’s selling price. They need to consider the mortgage payment, interest, property taxes, homeowners insurance and possible mortgage insurance. They should also leave room in their budget for repairs and other unexpected costs. Glick said buyers should purchase within their means rather than stretching their finances to the limit.
