Surprise! A mortgage isn't really a loan after-all

The most important thing you must realize about a mortgage is that what you believe it to be is actually wrong. The first thing to put straight is that it is not a loan, although they are normally referred to as a mortgage home loan. In fact a mortgage is like a contract whereby the person buying the property (mortgagor) arranges finance to cover the cost from a lender (mortgagee) and the property is used as security against the debt until it is fully repaid. More accurately, it is a document that protects your lender's interest with your property itself and a legal agreement you have provided to a lender.

If it wasn't for the availability of mortgages, individuals and businesses would need to find the full amount for a property in order to purchase it. Misunderstandings on how the system works also create problems but the main points are dealt with during the rest of this article. 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). The security the mortgagee uses is called a lien which is a legal term that stays in force until all monies are repaid.

The property you are buying does in fact become collateral for the finance that has been sought to pay for it and is the protection a mortgagee needs if he is going to continue financing house purchases. Being a legal contract, the lien will be lodged within the records at the county or city courthouse (or a similar public office). This is now a recorded legal agreement and cannot be reversed until the full balance of the debt is cleared. This situation may seem strange but in essence what it means is that the property is owned completely by the mortgagor and not the mortgagee who also does not have the title.

The only time the mortgagee has any rights over your property is in the event that you default on payments when he can sell it to recover the outstanding debt. Should they need to reclaim these costs then the case will be held in court and the procedure called foreclosure will be started. This is done in order for it to be considered legal; this type of foreclosure is referred to as a judicial foreclosure. For the sake of clarity this is only a brief description of a much more complex subject but it should have helped explain the basic subject.