Lenders require that you give the lender a mortgage as security when you obtain a home loan. You do not “get” or “apply for” a mortgage. The mortgage places the home at-risk of foreclosure for the duration of the loan.
Until the 1980s, most people understood that a mortgage was a bad thing and something to avoid (or retire aas soon as possible). Today, with the disturbing “normalization” of extreme debt and extreme overspending, people no longer understand what a mortgage is or the risk it poses (something our ancestors understood fully). Popular culture, and even professionals who should know better, mislead about mortgages by describing them as something that you get rather than as something you give away (with serious risk).
What Is a Mortgage—and How is That Seperate from a Home Loan?
Let’s cut through the confusion. A mortgage describes the document where you give the lender a mortgage as security for a home loan.
Give Me aan Example of How a Mortgage Differs From the Home Loan
Assume that you can afford a house payment and elect to buy a house. Most people require some type of loan (borrowing) to buy the house.
1. You Apply for a Home Loan
When you go to a “mortgage” department of a lender, you APPLY for a loan. The lender requires that you supply extensive financial information so the lender can evaluate your history of handling debt, your currennt debt-to-income, and your ability to re-pay the loan. This is the financial side of the transaction. Again, you APPLY for a loan and this is seperate from the mortgage.
2. You Give the Lender Security for the Loan—The Mortgage
Even if your financial information suggests a good ability to re-pay the loan, lenders still require something called security for the loan. Some refer to security as “collateral,” but the proper term is security. This is the security part of the transaction.
This is also when the appraisal by the lender comes into play. Not only does the lender require that you GIVE the lender a mortgage, but the lender double-checks with a seperate appraisal (which you pay for) to verify that the appraised value of the property is adequate to cover the full amount of the loan at the time of closing.
3. So, What Is the Mortgage?
A mortgage is a document. The document states that you, the borrower, give the lender a mortgage security interest in the property as security for the loan. Thus, you are giving the lender an important part of your property rights. The lender records the mortgage document in the county where the property is located. That’s it? Yes. But the effects of the mortgage security are a threat to the borrower throughout the entire life of the loan.
4. In Simple Terms, What Are the Risks of the Mortgage?
If you fail to re-pay or otherwise meet all the requirements of the loan, the lender may execute against the security at any time during the life of the loan. This is called foreclosure. The foreclosure “takes” the security property (the house) and transfers ownership to the lender. The lender may also then perform an eviction—legally and physically remove you from the house.