Financial Literacy posts are designed to be more than just a simple definition, they are aimed at putting financial concepts into easily understandable terms and to give an example or two to demonstrate the answers.
Today we ask: What is a Mortgage?
By definition a mortgage is pledging a property to a lender as security in return for a mortgage loan. While a mortgage is not an actual debt it is evidence of a debt and is the legal instrument used to transfer an interest in land from an owner to a lender on condition that it will be given back to the owner once the terms of the mortgage have been satisfied.
I am a big fan of pictures so we shall use a few to show what happens.
Let’s take the example of ‘Joe’ who wants to buy a house. He must save up a deposit as loans require ‘equity’ it gives the bank some security in the sense that it means the person is vested in the purchase (they stand to lose …