HSC Business Studies - Finance Practice Exam 2025 - Free Business Studies Finance Practice Questions and Study Guide

A mortgage is a specific type of long-term debt that is most often used to finance the purchase of real estate. Its primary characteristic is that it is paid over a fixed period, typically spanning 15 to 30 years, and involves the borrower making regular payments that include both principal and interest. This fixed repayment schedule helps borrowers plan their finances and understand the total amount they will owe over the life of the loan.

The requirement of interest payments is also a key aspect; it compensates the lender for the risk taken on and the opportunity cost of lending money. Mortgages are usually structured in such a way that the loan amount is amortized over the set term, meaning that a portion of each payment goes towards reducing the principal balance, while the remainder covers interest.

This characteristic distinguishes mortgages from more flexible or less formal types of borrowing, where payment terms may vary widely and interest may not be applicable.