What, exactly, is a Mortgage?

For many of us who are still in school, after all these years, and still living like students much of the adult world remains alien to us. Yet we all aspire at some point to own our own homes. Unless one of us happens to become super rich and will be able to pay for our houses in cash it is likely that we will have to take out a mortgage to finance our first home, or at some later date, take out a mortgage as away to help finance certain parts of our lives.

But what is a Mortgage anyways and should we be scared of having one?

Well the etymology of the word Mortgage does involve the word death. The word Mortgage comes from the combination of two Norman French words. Mort which means death or passive and gage which means pledge. So, strictly translated it meant a death pledge. Fortunately, this had nothing to do with the killing of the mortgagor by the mortgagee but rather had to do with a change to mortgage law in England after the middle ages. Originally, during the Middle Ages, when one put up there land as security for a loan the mortgagee(the lender) would actually take possession of the land in question and retain it until the loan was repaid. This was known as a Live gage since the mortgagee was ‘active’ in his possession of the land. So really, the lender would be known as the livegagee. Once the borrower had repaid the debt they could then retake possession of their land.

But as England grew commercially many mortgagees could not actually take possession and occupy all of the land that mortgagors(the borrowers) had given up as security for various loans. From there came the idea of the mortgage, which basically flipped the lender’s interest in the land on its head. Instead of having an active interest in the land until the debt was repaid, i.e. possession, the lender would only have a passive interest in the land, meaning that the lender could only take active possession of the land if the debt wasn’t paid by a certain date.

So a mortgage, like almost all transactions that occur in the private law, is a relationship between two parties, the mortgagor (the lender) and the mortgagee (the borrower). The transaction itself, if it can be called that, is the giving or ‘conveyance’ of an interest in land as security for a debt. Accompanying this conveyance is a condition that if the debt is paid by a certain date the conveyance or interest is void, if the debt isn’t paid the interest is reverted to the mortgagee. This involves a sets of rights which are held by both parties to the transaction.

The Right of the Mortgagor (Borrower) The right to redeem:

Basically, the Mortgagor has the right to repay the loan with the interest and any expenses accrued in relation to the mortgage and then demand that the interest in the land be reconveyed or ‘redeemed’ to him/her. This right to redemption has become known as equity of redemption.

The Right of the Mortgagee (Lender) Right to Foreclose:

In the case of the Mortgagee, if the loan isn’t repaid by the certain date, and the Mortgagee makes a petition to the court, there begins what is called a period of foreclosure, which is usually ends 6 months after the petition. If the loan is not repaid the Mortgagee can foreclose on the mortgage and thereby take possession of the land.

So in a nutshell, this is the basic outline of a Mortgage. There is a lot more involved in the law of mortgages, like second mortgages, reverse mortgages, assignments, Discharges and defaults. It gets pretty complicated and difficult to explain in short bits. And these other things, the complicated bits are actually the most important to know because they involve the most hot water. So should we then be afraid of having a mortgage? Well, like any debt, you have to be careful, but going to see a lawyer to explain to you what is going on with a mortgage, and your particular mortgage, is always a good idea, especially considering the stakes are usually quite high, over and above 150,000$.

This may seem like a shameless plug for the legal profession but it isn’t. The law is insanely complicated, especially when it involves commercial transactions. But a word of warning, a lot of lawyers aren’t the most ethical or virtuous characters. Shopping for a lawyer is like shopping for a mechanic, word of mouth and positive recommendations from friends and workmates go a long way to preventing yourself from getting screwed…