Things You Don't Know About Mortgages By: Lin Ennis

Despite increasing numbers of the population having a mortgage, it is amazing how few people actually know what a mortgage is and how it works. For one thing, although we commonly call them home loans, they aren't really loans. They are contracts for an exchange of one thing for another. And they certainly aren't "given" to you by lenders.

The mortgagor is the person who owes money. Usually, that's you. The mortgage is the person who finances the deal (usually that's a bank) using a legal contract called a mortgage. So the mortgage is actually the contract, nothing else. What this means is this document is a way for the property to be used to safeguard any potential problems with payment until the house is finally paid for.

A mortgage is used as a method by which individuals or businesses can purchase residential or commercial property without paying the full value upfront. Although this article is brief, below are points that will aid in understanding how the mortgage system operates.

Since the mortgage is not a loan, the mortgagor should not be called the borrower and the company providing the financing should not be called the lender because they are the mortgagee. The document itself produces a lien on your property which is not cleared until the debt is paid.

This means that the property becomes security against itself and is the protection a mortgagee requires to fulfill the promise of funding. This lien then becomes a matter of public record when it is registered at the county courthouse or equivalent. While the property is owned now by the mortgagor, the lien cannot be reversed until the amount specified in the debt is paid off. So how this works is that the mortgagor (you) owns the property completely even though the mortgagee has possession of the mortgage but not 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 process has many names and in the United States it is referred to as foreclosure.

Confusing? Perhaps that's why we've become a little less accurate in talking about mortgages as loans from lenders to borrows. Just remember, as the mortgagor, you hold the power! Use it wisely to pay off your home as quickly as possibly and get rid of the possibility of the mortgagee ever selling your property to recover funds!


Lin Ennis is the author of Let your Mortgage Make You Rich! and advises people on how to cut their mortgages by 2/3.

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