While mortgages are the most common way of buying a home, it is remarkable how few people actually understand what a mortgage is. A common misconception is that a Mortgage is a Home Loan but this is false and people need to be educated about the fact that it is not a loan at all. 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. This is just a simple way to ensure the lender is not put at risk financially by the transaction.



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. Misunderstandings on how the system works also create problems but the main points are dealt with during the rest of this article. The problem arises because so many people refer to the buyer as the Borrower and the financier as The Lender which leads people to believe that the money has been loaned which is not the case. A security measure designed for purchasing properties, called a lien, is enforced until the mortgage is cleared at the end of the term.

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. This lien is recorded within public records likely to be found at a county courthouse or similar establishment. The lien stays in force while the debt remains but the property is actually owned by the mortgagor. What this means is that even though the mortgagee has possession of the mortgage he is not the owner of the property nor does he have the title.

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. This is the dreaded process referred to as foreclosure but if the property is used as security, then the foreclosure must go through the court system.

This is done in order for it to be considered legal; this type of foreclosure is referred to as a judicial foreclosure. I hope this brief introduction has further helped your understanding of an important but often overlooked area of personal finance. Constructions loans work pretty much the same way by having a note and mortgage along with a construction loan rider for the construction loan period.