Is it A Mortgage or Is it A Loan?
August 27, 2008
This article is hopefully going to explain many of the things people believe about mortgages that are actually false. For one thing, although we commonly call them Mortgage home loans, this is not at all what they actually are; in fact, they aren’t loans at all, nor are they something that has been given to you by lenders.
The mortgagor is the person who owes money to the mortgagee (the person who finances the deal) using a legal contract called a mortgage. In fact, in reality, this isn’t the debt but the security required by the lender to protect their interests for the duration of the term.
Without mortgages being available, people and many businesses would not be able to afford the full asking price of a property if it was required they pay this amount upfront. There are also misconceptions about how they work so below is a description of how the process works.
The mortgagor who is also referred to as the Borrower (leading to the false impression that it is a loan) and the mortgagee, who is also called the Lender (again, falsely leading you to think that a loan has been agreed). A lien is a means by which the mortgagor can purchase a home but it is the mortgagee that retains legal ownership until the arrangement between them has been completed (the debt is paid off).
This means that the property becomes security against itself and is the protection a mortgagee requires to fulfill his promise of funding. The lien (document) is normally recorded at the local courthouse in the public records section.
So while the property is recorded as yours, there is an interest in its ownership which cannot be altered until the debt is paid off. Even if your property is mortgaged, you still own the property wholly and completely and nobody else, not even the mortgagee has title to the property.
The only right that your mortgage gives to the mortgagee over your property is to sell it to recover funds in the case that you do not pay off your debt. If in the unfortunate event this happens, the process whereby the funds are reclaimed is called foreclosure.
To ensure that everything is legal and above board, the court will place a ruling on the disposal in a process called judicial foreclosure. I hope this brief introduction has further helped your understanding of an important but often overlooked area of personal finance.