What Is a Mortgage?

A mortgage is an interest in a property that's used to secure a debt. This debt is usually a loan that's used to purchase the property. Such property is real estate in most cases. A mortgage is the most common method of financing the purchase of a house in the United States.

Ownership

Ownership is one aspect of a mortgage that's not always well understood. The owner retains the ownership to the property in almost all mortgages in the United States. However, the lender does gain enough property rights to enforce the security of the loan. This generally means that the lender can sell the property to recover the loan if the owner defaults on the loan.

Implementation

The lender (mortgagee) typically provides the owner of the property (mortgagor) with a loan, and the lender receives an interest in the property of equal value. The mortgagor usually repays the loan by making payments on a schedule as specified in the terms of the loan. The mortgagor receives the interest in the property back from the mortgagee once the property owner pays off the loan.

Property Rights

A mortgagee in the United States is generally entitled to take possession of the mortgaged property if the mortgagor defaults on the loan. This process is known as foreclosure and is performed for the purpose of selling the mortgaged property in an attempt to recover the loan. Mortgages in other countries may not provide the mortgagee with foreclosure rights.

Proceedings

The mortgagee may not recover the remaining balance of the loan from the sale of the house in the event of a default on the loan. In this case, the mortgagee may be entitled to enter into proceedings against the mortgagor. This is a legal process in which the mortgagee attempts to recover the outstanding debt from the mortgagor.

Benefits

The primary advantage of a mortgage is that it allows the mortgagor the use of the property while the mortgage loan is being paid off. This loan allows the mortgagor to purchase the property without paying the purchase price upfront and provides the mortgagee with a guaranteed security for the loan. This generally means that a mortgage loan has a much lower interest rate than other types of loans.