Do you think you could accurately describe what a mortgage is to an auditorium filled with your peers and colleagues?
Surprisingly, most people I asked said yes, but in actuality, most of them could not.
Admittingly, for the first couple of years of my mortgage career, I couldn’t either. The mortgage broker I worked for in the early 2000s was far more concerned with how many cold calls we made in a day, rather than educating us on the products and services we were providing.
I’ve found that the term “mortgage” is often used incorrectly. The majority of people refer to “the debt they have on their home” as their mortgage. The mortgage is not actually the debt - you don’t really pay off your mortgage, you pay off your note (the debt), which then satisfies your mortgage.
Mortgage | Mortgagor | Mortgagee
The mortgage is a contract between the mortgagor (you, the homeowner) and the mortgagee (the lender), where the mortgagor agrees to pledge their real property or use their home as collateral, to secure debt issued by the mortgagee used to purchase the home or to refinance.
The mortgage must be notarized, then recorded with the subject property’s county clerk. Recording the mortgage, also known as “perfecting the mortgage,” acts as public notification that the mortgagee has placed a lien on the subject property and the mortgagor acknowledges the existence of that lien. Per Investopedia.com, “a lien provides a creditor with the legal right to seize and sell the collateral property or asset of a borrower who fails to meet the obligations of a loan or contract.” Perfecting the mortgage also prevents multiple mortgagees from issuing debt against the same collateral, without knowledge of each other’s existing debt.
Ok...back to the auditorium…
You’re reading your index card before the big speech on what a mortgage is and you’re ready to go. You now know a mortgage is not the debt the homeowner (the mortgagor - think payor - the one who pays) repays, it’s the contract signed by the homeowner, acknowledging the lender (the mortgagee - think
- the one who is paid) has placed a lien on the property, using the property as collateral for the debt. This lien entitles the lender to seize and sell the property to pay back the debt (the note), if the homeowner defaults on their payments.
How’d you get so smart?