A mortgage is a transfer of interest in property from the property owner to a lender in exchange for a debt. The mortgage is the security for the debt, which is usually a loan. Most people purchase a home with a mortgage because it's relatively rare to buy a house outright.
Types of Property
The property used to obtain the mortgage is almost always real estate, although mortgages are sometimes used to buy ships as well. Some jurisdictions only allow real estate to be mortgaged. The association between mortgages and home loans is so strong in the United States that the two terms are often used interchangeably in common usage. It's important to remember, however, that the mortgage is the security for the debt and not the debt itself.
Procedure
The lender (mortgagee) lends the borrower (mortgagor) a sum of money that the mortgagor uses to buy a house from the seller. The mortgagee receives an interest in the house equal to the value of the loan. The interest in the property is returned to the mortgagor once the terms of the mortgage are fulfilled. This typically occurs when the loan is repaid.
Ownership
Most mortgages in the United States are a mortgage by legal charge. The mortgagor retains actual ownership of the property in this type of mortgage. However, the mortgagee gains enough legal rights over the property to enforce the security of the mortgage. This generally means that the mortgagee is able to sell the property in the event that the mortgagor defaults on the loan.
Foreclosure
The legal process by which the mortgagee takes possession of the property from the mortgagor is known as foreclosure. Most jurisdictions allow the mortgagee to sell the property and apply the proceeds toward the original debt. These proceeds may not be sufficient to cover the loan.
Recourse
The mortgagee also may have recourse against the mortgagor if the proceeds are insufficient to cover the debt in some jurisdictions. This means the mortgagor may still owe the balance of the loan to the mortgagee even after the house is sold.
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