Explain Like I’m 5: How Do Mortgages Work?

Mortgages can feel like rocket science if you’re just getting started.
But really? They’re just a deal. A simple trade. A grown-up version of something you already understand.

Let’s explain it the easiest way possible - using a kid, a bike, and five bucks from the tooth fairy.

The Tooth Fairy Down Payment

bright red bike mortgage

You’re a kid.

You walk into a bike shop and spot your dream ride - bright red, chrome handlebars, maybe even a bell. You can picture putting some sweet streamers on that bad boy too.

Price tag? $50.
But you’ve only got $5 from the tooth fairy

.Still, you give it a shot.

“Hey Mister, can I buy that bike?”

The store owner grins - not in a mocking way, but in a way that grown-ups teaching kids about the real world might smile.

“Tell you what, kid. Give me your $5 today, and I’ll let you ride the bike home. You’ll pay me back the rest over time - and toss in a little thank-you tip along the way for using my money. Grownups call that interest.”

“You’ll owe me $1 a week until it’s paid off.”

“Oh - and one catch - the bike’s still mine until you finish paying it off. You can ride it, enjoy it, put streamers on it... but if you stop paying, I get to take it back.”

Boom.
You just signed your first mortgage.

How Mortgages Actually Work

A mortgage is a loan that helps you buy a property - without paying the full amount upfront.

Here’s the breakdown:

  • You put down a bit of your own money (your down payment)

  • The lender gives you the rest

  • You agree to pay them back in small pieces over time

  • You also pay interest - a little thank-you tip for using their money

  • If you stop paying, they can take the house back

Until you’re fully paid up, the house technically belongs to the lender.
You can live in it, enjoy it, and decorate it all you want - but miss your payments, and the lender gets to say, “I’ll take that back, thanks.”

The Allowance Plan (and a Little Help From Grandma)

Each week, you come back to the shop with a dollar (or more!) from your allowance.

  • A buck from doing chores.

  • Another from your weekly allowance.

  • A few coins you rescued from the dryer.

  • And maybe one day... a crisp $20 bill from Grandma for your birthday.

Now here’s the fun part:

That birthday gift? You can throw that straight at your balance.
No interest. No extra thank-you tip needed.

It’s called a lump sum payment - and it goes directly toward what you still owe on the bike.

And because you’re not just paying the scheduled weekly bits, but extra, you’re chipping away at the debt faster than expected. Less interest overall. So you get the bike fully paid off sooner - and with fewer thank-you tips along the way.

The shop owner nods with approval.

“Smart move, kid. Most grown-ups don’t even think to do that.”

And then one day... you hand over your final dollar.

The shop owner reaches under the counter and pulls out a crisp envelope.

“Congrats! You’re now the full owner of this bike - streamers and all.”

Just like that - no more payments. No more debt.

The bike is 100% yours.

Mortgages in the Real World

Replace the bike with a house.
The $5 with your down payment.
Your allowance with your paycheque.
Grandma’s birthday gift with your work bonus or other windfall you’ve received.
And the weekly visits with monthly mortgage payments.

That’s it.

You borrow a large sum. You pay it off slowly over time. You pay some interest along the way. And eventually, you own your home, free and clear.

Why Do People Use Mortgages?

Because homes are expensive - and most people don’t have $600,000 sitting in their bank account.

Mortgages let you:

  • Buy a home now instead of waiting decades to save up

  • Pay for it slowly while you live in it

  • Build equity (aka ownership) with each payment

  • Lock in a price now, even if property values rise later

And done right, a mortgage can be one of the smartest wealth-building tools you’ll ever use.

But Be Smart About It

Not all mortgages are created equal.

Some come with sky-high penalties.
Others trick you with low rates but lock you in tight.
And some are flexible, letting you pay faster if life gives you a raise, a windfall or a side hustle.

You wouldn’t sign a contract for a $50 bike without reading it.
So don’t do it with a $500,000 mortgage.

Final Thought

A mortgage isn’t scary.
It’s just a big kid version of a bike loan.

But the stakes are high.
The numbers are big.
And the right advice can save you tens of thousands of dollars.

Ready to Make Your Move?

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📞 Book a call with Jeff and get your questions answered

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