Is a Mortgage a Death Pledge? Understanding Home Loan Basics

Have you ever come across the surprising claim that a mortgage literally translates to "death contract"? While the origin of the word is interesting, it doesn't reflect the reality of home financing. This article dives into the world of mortgages, explaining what they are, how they work, and why they're a crucial tool for homeownership.

The Etymological Twist: From "Dead Pledge" to Dream Home

The word "mortgage" originates from Old French, specifically a term "mort gage" which translates to "dead pledge." This historical meaning refers to the concept that the pledge (the property) becomes "dead" or inactive once the loan is fully repaid. While the term might sound ominous, it simply reflects the historical legal concept behind mortgages.

So, What Exactly is a Mortgage?

In simpler terms, a mortgage is a loan used to finance the purchase of a property. The property itself serves as collateral for the loan.

Here's how it works:

• Borrowing the Money:??You, the borrower, approach a lender (bank, credit union, etc.) and apply for a mortgage loan. The loan amount typically covers a significant portion, if not all, of the property's purchase price.

• Securing the Loan:??The property you're purchasing becomes security for the loan. This means the lender has a legal claim on the property if you fail to repay the loan. There are two main ways this is documented:
• Mortgage:??In most states, a mortgage is a legal document that creates a lien on the property. This lien gives the lender the right to foreclose on the property and sell it to recoup their losses if you default on the loan.
• Deed of Trust:??Some states utilize a deed of trust instead of a mortgage. This document transfers the property's title to a neutral third party (trustee) who holds it until the loan is repaid. If you default, the trustee can then sell the property on behalf of the lender.

• Repaying the Loan:??Your mortgage comes with a fixed interest rate and a set repayment schedule. Each month, you make a payment that includes both principal (the original loan amount) and interest (the cost of borrowing the money). Over time, the principal is paid down, and eventually, you own the property outright.

*** Bonus Tip: Accelerate Your Mortgage Payoff

Why Use a Mortgage?

Keep Reading at My Home, My Sale