What is a Mortgage? A Simple Explanation for Kids, Teens and Beginners

What is a Mortgage? A Simple Explanation for Beginners

Introduction to Mortgage for Kids and Teens

This video explains the concept of mortgage in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about mortgage, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

What is a Mortgage - A Simple Explanation for Kids Teens and Beginners
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Suitable for students from grade levels:

  • Kindergarten
  • Elementary School
  • Middle School
  • High School

The topics covered are:

What is a Mortgage for Kids Teens and Beginners - A Simple Explanation
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Howdy Wall St. Willy! My friend Daniel asked me about a Mortgage. But…

What is a mortgage ?

Well a mortgage is a loan you take to buy a home.

Can the mortgage be more than the home’s value?

Well, can I get more money in a mortgage than what the home is actually worth. So like, if my home is worth $100,000, can I get a mortgage for $200,000?

No. You usually take the mortgage for 80% of the home’s value and the other 20% of the home’s value is your down payment.

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What is a down payment?

Banks always take down payment for a mortgage because they just want to be safe and make sure you can pay at least that much money at one time which means that usually you’ll be able to pay the rest of the mortgage.

So if you are taking mortgage for a $100,000 home, you’ll be taking mortgage for approximately $80,000 and then you’d make a down payment for $20,000.

Well can I buy a home if I don’t have the whole 20% down payment?

Yes, you can. There are special mortgages like FHA mortgages that allow you to pay less than 20% down payment but that’s a topic for a separate video.

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How much mortgage can I get?

Well, how is the mortgage amount even decided?

The mortgage amount is decided by your income, other payments you have like student loans or car payments, your credit score and the value of the property that you are taking the mortgage on.

And also, it can be decided based upon how much money you put as down payment.

Well, how long do I have to pay the mortgage for?

You usually have the repay the mortgage in 10 to 30 years but the most common term is 30 years.

30 years? That’s a lot of time!!

Well, how frequently do I pay the mortgage?

Like do I pay once every year, once every day or do I pay everything at once?

Mortgage for Kids Teens and Beginners - A Simple Explanation
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No. you pay the mortgage amount slowly every month.

How much is the monthly payment?

How much do I have to pay every month?

The amount that you pay every month depends on the mortgage amount, how long the mortgage is for and the interest rate.

What happens if I can’t make a mortgage payment?

Then the bank will give you a couple of months to catch on your payments.

But, if you cannot still catch up on your payments after a couple of months, the bank will make a foreclosure which means that the bank will take possession of your home and sell your home to get its money back.

What happens after I finish all of the payments?

Then the bank has no claim on the home and the home is 100% yours. And you also will not have to keep paying the bank every month.

Yay! Anyway…

Where can I get a mortgage from? Who gives out mortgages?

What is a Mortgage for Kids Teens and Beginners
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Are banks the only ones who can provide a mortgage?

No, there are many other financial institutions that can. For e.g., credit unions can also give a mortgage.

Types of interest rates for a mortgage

Well, I am interested in learning about the interest rate on a mortgage. Is there anything else you can tell me about it?

There are 2 kinds of interest. The first is fixed interest and the second is floating or adjustable interest. But that’s a topic for another time.

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Thank you very much for telling me about a mortgage, Wall St. Willy.

You are welcome, Sooper Cooper. Remember, Finance is Your Friend!

Video Featured in the Below Financial Literacy Courses for Kids & Teens

Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens

Podcast: What is a Mortgage?

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