How does a mortgage work?

A mortgage is a long-term loan used to buy property, where the property itself acts as security for the lender. You usually pay a deposit up front, often between five and twenty percent of the price, and borrow the rest, repaying it with interest over a term such as twenty-five or thirty years. Each monthly payment covers part of the interest and part of the original amount borrowed, so your debt slowly shrinks. Interest rates may be fixed for a period or variable, which changes what you pay. If you stop paying, the lender can repossess the property. Shopping around for the rate and term, and putting down a larger deposit, can greatly reduce the total cost.