As common as mortgages are, there are a surprisingly large number of us who are under false impressions about the way they function, and what they actually are. For one thing, though we do commonly call mortgages "home loans," this is not at all what they actually are. In fact, mortgages aren't loans at all, nor are they something that have been given to you by lenders. More accurately, it is a security instrument that you have provided to a lender. It is a document that protects your lender's interest with your property itself.
A mortgage functions in the following way:
- A mortgager (you) ? also referred to as a borrower (leading to the false impression that it is a home loan) and the mortgagee, who is also called the lender (again, falsely leading you to think that a loan has been lent).
- The mortgage document itself produces a lien on your property. This is the collateral ? the security ? for the mortgagee who has provided the security instrument. This lien is recorded within public records ? likely at a county courthouse or similar establishment.
- Ownership of the property is then yours and cannot be transferred to anyone else until you have paid off the amount required to reverse the lien.
- Even if your property is mortgaged, you still own the property wholly and completely. 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. This is the dreaded process referred to as foreclosure.
- Should the mortgage be used for security, then the foreclosure must progress through the court system in order to be legal in the majority of circumstances. This type of foreclosure is referred to as a judicial foreclosure.
Obviously there is much more to mortgages than this, but these are the basic foundations upon which the mortgaging system has been constructed.