Glossary · Investing and personal finance
Mortgage
A mortgage is a loan to buy a home, repaid in monthly payments over many years, with the home as security: if the payments stop, the lender can take it.
Also called: home loan, mortgage loan, 30-year fixed mortgage
20% down, 30-year loan at 6.20%, Dec 2025: principal and interest on $343,280.
Conventional home-purchase loans, Dec 2025. The record: 15.75% in Nov 1981.
In plain words
Very few people can pay $400,000 for a house in cash. So they pay part of it themselves (the down payment) and borrow the rest from a bank. That loan is a mortgage: you repay it month by month, usually over 15 or 30 years, and until it is paid off the house is the lender’s security.
Each monthly payment has two parts: interest, the price of the loan, and principal, which pays down what you owe. In the early years most of the payment is interest; by the end almost all of it is principal. This schedule is called amortization.
The typical US mortgage has a fixed rate for 30 years, so the payment never changes. With 20% down on the median new home, the monthly payment was about $2,102 in Dec 2025, at an average rate of 6.20%.
Example
$300,000 for 30 years at 6.5%
- The monthly payment: $1,896 (the formula is below).
- First month: the interest is $300,000 × 6.5% ÷ 12 = $1,625, so only $271 pays down the loan.
- After 10 years you have paid $227,544 and still owe $254,328.
- Over 30 years you pay $682,633 in all: the $300,000 loan plus $382,633 of interest.
A 15-year loan at 6% would cost $2,532 a month, but only $155,683 of interest in total.
One level deeper
The payment formula: payment = loan × r ÷ (1 − (1 + r)−n), where r is the monthly rate (the yearly rate ÷ 12) and n is the number of payments. Small changes in the rate matter a lot: at 6.5% instead of 5.5%, the $300,000 loan costs about $193 a month more.
A fixed-rate mortgage keeps the same rate for its whole life. An adjustable-rate mortgage (ARM) starts lower and then moves with market rates, so the payment can rise; see fixed vs variable rate. The 30-year fixed loan is unusually common in the US; in many countries rates are fixed for only a few years.
What buyers pay depends on prices and rates together. With 20% down on the median new home, the monthly payment was about $853 in January 1990, at 9.66%, and $1,271 in January 2020, at 4.10%. Over a full 30 years at 6.20%, the interest on the latest typical loan would add up to $413,614.
The monthly payment on a typical new US home since 1973
Principal and interest on a 30-year loan for 80% of the median new home’s price, at each month’s average mortgage rate. In dollars of each month the payment mostly climbs with prices, but rates move it too: it jumped in the late 1970s as rates soared, fell after 2008 as prices and rates dropped, and shot up after 2021 when both rose together.
The numbers behind the chart
| Date | Monthly payment |
|---|---|
| Jan 1973 | $167 |
| Dec 1980 | $595 |
| Dec 1990 | $859 |
| Dec 2000 | $910 |
| Dec 2010 | $980 |
| Dec 2020 | $1,144 |
| Dec 2021 | $1,439 |
| Dec 2022 | $2,119 |
| Dec 2023 | $2,249 |
| Dec 2024 | $2,161 |
| Dec 2025 | $2,102 |
Why it matters
For most families it is the biggest debt they will ever have, and the house is the biggest asset.
Mortgage rates move the housing market: when they rise, the same monthly budget buys a much cheaper house.
Paying it off builds net worth month by month: each principal payment is saving in the form of a home.
A common mistake
Myth: A 30-year mortgage at 6.5% costs 6.5% of the loan in interest.
In fact: 6.5% is the yearly rate. Over 30 years the interest adds up to more than the loan itself: on $300,000 at 6.5%, about $382,633 of interest on top of the $300,000.
Questions people ask
How is a mortgage payment calculated?
With the amortization formula: payment = loan × r ÷ (1 − (1 + r)−n), where r is the monthly rate and n the number of months. $300,000 at 6.5% for 30 years: r = 0.065 ÷ 12, n = 360, payment $1,896. Property taxes and insurance often come on top.
What is a good mortgage rate?
It depends on the market at the time and on the borrower’s credit score, down payment and type of loan. The average rate on conventional home-purchase loans was 6.20% in Dec 2025; the record was 15.75% in Nov 1981.
15-year or 30-year mortgage: what is the difference?
A 15-year loan has a higher monthly payment but usually a lower rate and far less total interest: on $300,000, about $2,532 a month and $155,683 of interest at 6%, against $1,896 a month and $382,633 of interest over 30 years at 6.5%. The 30-year loan leaves more room in the monthly budget.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- Average mortgage rate in the US (conventional home-purchase loans), monthly: Federal Housing Finance Agency: Monthly Interest Rate Survey (MIRS), Table 17 "Terms on Conventional Single-Family Mortgages, Monthly National Averages, All Homes", contract interest rate, 1973-01 to 2018-12; National Mortgage Database (NMDB®) Aggregate Statistics, new residential mortgages, national monthly, "Average Interest Rate" of Conventional Market (Home Purchase), weighted by the number of mortgages, 2019-01 to 2025-12.
- Median and average sales price of new houses sold in the US, monthly: U.S. Census Bureau and U.S. Department of Housing and Urban Development, Survey of Construction, New Residential Sales, "Median and Average Sales Price of New Houses Sold" (price_cust.xlsx).
- This page explains a term. It is not investment advice.