Property law (2022): Conveyancing: Mortgage (Part One)

A mortgage is a legal instrument of the common law which is used to create a security interest in real property held by a lender as a security for a debt, usually a mortgage loan. The corresponding term in civil law jurisdictions is hypothec.

A mortgage in itself is not a debt, it is the lender's security for a debt. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

The word is a Law French term meaning "dead pledge," originally only referring to the Welsh mortgage, but in the later Middle Ages was applied to all gages and reinterpreted by folk etymology to mean that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.

In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than on other property (such as ships) and in some jurisdictions only land may be mortgaged. A mortgage is the standard method by which individuals and businesses can purchase real estate without the need to pay the full value immediately from their own resources. Refer mortgage loan for residential mortgage lending, and commercial mortgage for lending against commercial property.

Participants and variant terminology.

Legal systems in different countries, while having some concepts in common, employ different terminology. However, in general, a mortgage of property involves the following parties. The borrower, known as the mortgagor, gives the mortgage to the lender, known as the mortgagee.

Lender or mortgagee.

A mortgage lender is an investor that lends money secured by a mortgage on real estate. In today's world, most lenders sell the loans they write on the secondary mortgage market. When they sell the mortgage, they earn revenue called Service Release Premium. Typically, the purpose of the loan is for the borrower to purchase that same real estate. As the mortgagee, the lender has the right to sell the property to pay off the loan if the borrower fails to pay.

The mortgage runs with the land, so even if the borrower transfers the property to someone else, the mortgagee still has the right to sell it if the borrower fails to pay off the loan.

So that a buyer cannot unwittingly buy property subject to a mortgage, mortgages are registered or recorded against the title with a government office, as a public record. The borrower has the right to have the mortgage discharged from the title once the debt is paid.