What is a Mortgage Loan?

A mortgage loan is a mortgage-secured loan. The term mortgage refers to a security interest in real property, which is held by the lender that extended the loan. It is a loan where you pledge an asset, usually a home, as collateral to secure the loan. This means you give the lender the right to take the asset away if you fail to repay the loan according to the terms on the contract. The most common use of a mortgage loan is to purchase a home.

Technically, the correct term is 'mortgage backed loan'. The term mortgage actually refers to a document that pledges the home as collateral and is a separate document from the promissory note in which you promise to repay the loan.

Most people do not have enough money to purchase a house with cash, so they finance part or almost all of it with a loan. At the time the lender (bank, credit union) pays out the cash for the home purchase, it also makes the borrower sign a mortgage, which is then recorded in the real estate records of the town in which the property is located. The mortgage states that the borrower may not sell the property until the loan is paid in full.