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I'm from Europe and curious how this stuff works in the US.

From what I read on wikipedia this seems to be some kind of a security deposit for a loan that you take to buy a house. Is this correct? Because in movies everyone seems to have mortgages to pay, and they are huuuuuge and it looks like it's the scariest tax in the US :) So all americans are buying houses trough loans?

And how is the mortgage value calculated?

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  • Mortgages exist in Europe too, just a lot more people own in the US than in Europe that's why you hear about it in relation to the USA.
    – Vitalik
    Commented May 12, 2011 at 1:59
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    Where in Europe are you from Alexandra? In the UK mortgages are the norm, and where I have lived in Germany they are too.
    – Rory Alsop
    Commented May 12, 2011 at 7:35

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Mortgages are not a tax, though they are considered liabilities in accounting. A liability being anything that has to be paid out and so would be a negative entry in a balance sheet.

They tend to be huge, because of the assets being purchased. Though, this depends greatly on the housing market in the particular location. This varies greatly in the U.S.

No, it is not a security deposit on a loan. It is a loan. The asset being bought is typically the collateral on the loan. If you default on the loan, the lender takes possession of the house and typically boots you out so it can sell it in order to get it off its balance sheet.

Yes, most Americans buy their homes through loans. I would expect this to be typical in many countries, due to the relatively high value of these assets. It would take quite some time to save up the money in order to pay cash. The basic idea is to trade-off that time and make the purchase accessible to more people at an earlier time. It involves some risk on the part of the buyer and the lender.

The total value of the mortgage is the price at which the asset is bought plus the interest payments over the life of the loan, though the value to the lender is the sum of the interest payments. The typical terms are 30-year, fixed-interest. Though there are adjustable rate mortgages (ARM) and shorter term ones available. These are typically avoided due to the higher interest rate on the shorter terms and the possibility of the ARM adjusting to prohibitively higher interest rates. That said, they have their uses and judicious employment of them can be a benefit.

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Per wikipedia, a mortgage is a loan secured by real property, often a house.

I don't have data to back it up, but anecdotally, yes, most Americans are buying houses using mortgage loans.

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  • If you are interested in the data on the occurrence of mortgages for owner-occupied properties, see census.gov/compendia/statab/2011/tables/11s0993.pdf. Roughly 70% of homes have a mortgage on them. That doesn't necessarily mean 30% of homes are purchased without a mortgage, as this number includes people who've paid off their mortgage over time, but it does highlight that the majority of Americans own their home by virtue of a mortgage.
    – Scott Mitchell
    Commented May 13, 2011 at 3:31

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