Property Planet: What Is a Mortgage? (For Kids)

Property Planet answers a question many kids ask: what is a mortgage? For kids, the answer starts with a simple idea. Most families do not have enough money saved to buy a home all at once, so they borrow. Professor Ledger shows how the loan, the promise and the home fit together.

What is a mortgage for kids?

A mortgage is a legal document that uses a home as security for a loan. Here is the key idea: there are usually two important papers. The promissory note is the borrower’s promise to repay the loan. The mortgage, or in some states a deed of trust, gives the lender a claim on the home if the promise is broken. In other words, the note is the debt and the mortgage is the security.

Deeds, title and ownership

A deed is the document that transfers ownership of a property from a seller to a buyer. Title means the legal right to own the property. When a family buys a home with a loan, the family usually holds the title, while the lender holds a lien. A lien is a legal claim on property that secures a debt.

Equity: the part you own

Equity is the value of the home minus what is still owed on the loan. For example, if a home is worth $300,000 and the family owes $200,000, their equity is $100,000. Each monthly payment pays some interest and some principal, so equity usually grows over time.

Foreclosure basics and state differences

If a borrower stops paying, the lender may start foreclosure, a legal process to sell the home and repay the loan. However, property law is different in each state. Some states usually require a court process, while deed-of-trust states often allow a trustee to handle the sale.

Practice on Property Planet

Try Mortgage Mission to see how the price, down payment, interest rate and loan term change a monthly payment. Then read the lesson Mortgage vs. Deed of Trust.