What is a Mortgage?

While it is not critically important, understanding the concept of what a mortgage is can be somewhat helpful to the borrower in understanding the lending process. A mortgage is nothing more than a security interest given by the owner of real estate. This security interest is usually given as collateral for a loan. Therefore, the mortgage is not the loan, only the collateral for the loan. In many states, the mortgage constitutes a voluntary lien against the property until the debt is repaid.

The actual loan is stated through the promissory note, which is the borrower’s written promise to repay the loan. The promissory note sets forth the loan amount, interest rate, and repayment terms for the loan. The combination of the promissory note and the mortgage guarantee the repayment of the loan. Since the borrower actually gives the mortgage (security interest) to the lender, the borrower is often referred to as the Mortgagor while the lender is often called the Mortgagee.

Since the mortgage is the security of the loan, lenders may require certain lien positions based on the type of loan. Judgments, collections, or other liens that may impair the lien position may have to paid or subordinated. Non-borrower spouses in states where homestead or dower rights exist may be required to sign the mortgage document in order to secure the lender’s rights.
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