A mortgage is a long-term loan secured by real estate. The borrower pledges the property as collateral. If they fail to repay, the lender can foreclose and sell the property to recover the debt. Mortgages are the largest form of household debt in most developed countries. In the United States, total mortgage debt exceeds $12 trillion.

The structure is straightforward. The borrower makes a down payment, typically 3 to 20 percent of the purchase price. The lender provides the rest. The loan is repaid over 15 to 30 years with interest. Early payments go mostly to interest. Later payments go mostly to principal. A fixed-rate mortgage keeps the same rate for the life of the loan. An adjustable-rate mortgage starts lower but resets periodically, which can cause payments to jump.

Mortgages are heavily regulated. In the United States, the Consumer Financial Protection Bureau sets rules for disclosure, underwriting, and servicing. Lenders must verify income, assets, and credit history. The Dodd-Frank Act created the qualified mortgage standard, which limits risky loan features like interest-only payments and balloon payments. These rules were a response to the 2008 crisis, when loose lending and securitization fueled a housing bubble that collapsed and triggered a global recession.

Mortgage rates are influenced by the Federal Reserve, inflation expectations, and the supply and demand for mortgage-backed securities. A small change in rates has a large effect on affordability. At 6 percent, a $400,000 mortgage costs about $2,400 a month. At 7 percent, it costs about $2,660.