Mortgagor vs Mortgagee, their meaning and uses.

In a real estate licensing exam, certain essential concepts, such as “mortgagor” and “mortgagee,” may not be the direct focus of individual questions. Instead, examiners often assess understanding of these concepts by integrating them into more general questions. This approach means that correctly recognizing and interpreting mortgagor vs mortgagee in the context of a question is essential to providing accurate answers.

In this article, we will learn what ‘Mortgagor’ and ‘Mortgagee’ are, explore the origins of these words, and discuss other terms related to them.

What is a Mortgagor in real estate?

The term “mortgagor” can be divided into two parts: “mortgage” and “-or.” The “mortgage” part refers to the loan used to purchase property, and “-or” indicates the person involved in the action. Therefore, the mortgagor is the borrower who takes out the loan to buy a home or other real estate.

Think of the mortgagor as the prospective homeowner. When someone takes out a home loan to purchase a property, they become the mortgagor. They pledge the property as collateral for the loan, promising the lender they will repay the loan amount over time, typically in monthly mortgage payments.

A mortgage not only covers the loan itself but also additional costs, such as property taxes and interest rates, which the mortgagor is responsible for as part of the overall loan terms.

Terms and phrases that can refer to the borrower in various contexts:

• Debtor: General term for an individual or entity that owes money to another party. In the context of loans, the borrower is the debtor.

• Trustor: In the context of a trust deed, which is an alternative to mortgages used in some states. The trustor is the person buying the property and taking out the loan. The title to the property is transferred to the trustee as security for the loan. However, the borrower still has the right to use the property as their own. If the trustor fails to make their loan payments, the trustee can sell the property to pay off the debt. 

What is a mortgagee in real estate?

In contrast to the mortgagor, the mortgagee is the mortgage lender—the party that provides the loan to the mortgagor. Typically, the mortgagee is a bank, credit union, or other financial institution. The mortgagee holds the mortgage as security for the loan. If the mortgagor defaults on their payments, the mortgagee has the right to seize the mortgaged property (usually through foreclosure) to recoup their losses.

The suffix “-ee” refers to someone receiving an action, just like in words such as “employee” (someone who receives employment). In this case, the mortgagee gets the right to enforce the mortgage terms if the borrower defaults.

In many cases, the mortgagee’s role extends beyond just lending money. They also manage the repayment terms and ensure that the mortgagor complies with all aspects of the loan agreement, including maintaining the credit score and paying property taxes on time.

Terms and phrases that can refer to the lender

• Creditor: This is a general term for a party to whom money is owed. In the context of a loan, the creditor is the one lending the money.

• Lienholder: In certain types of loans, especially those involving property or vehicles, the lender is referred to as a lienholder, as they hold a lie or legal claim on the asset until the loan is repaid.

• Financier: This term is often used to describe an entity or individual that provides funding or financing. It can be used broadly and is also applicable to lending scenarios.

• Banker: In many cases, especially in personal and home loans, the lender is a bank, so the term “banker” can be used to refer to the lender.

• Investor: Sometimes, especially in business contexts, the person or entity providing funds in the form of a loan can be referred to as an investor, as they are investing their capital with the expectation of a return.

• Beneficiary: Even when its use in the context of loans and lending is a bit different from terms like “lender” or “creditor.” The word “beneficiary” broadly refers to a person or entity that receives a benefit, especially from a trust, will, insurance policy, or other legal instrument.

Mortgagor vs Mortgagee: What’s the Difference?

The terms mortgagor vs mortgagee are fundamental in understanding how mortgages work. The difference between the two is simple but crucial:

• The mortgagor is the borrower—the person who borrows money to purchase a property.
• The mortgagee is the lender, typically a bank or financial institution, that provides the loan to the borrower.

This relationship of mortgagor vs. mortgagee is governed by the terms of the mortgage agreement, including such important terms as the interest rate, repayment period, and other fiscal obligations to which both parties must adhere.

Mortgagor vs Mortgagee: Key rights and responsibilities

Rights of the Mortgagor (Borrower):

• The mortgagor has specific rights that protect their ability to own and manage the property. For example, they usually have the right to renovate their home as long as they comply with local laws and the mortgage agreement doesn’t impose restrictions.
• One of the most important protections for the mortgagor is the right of redemption. This allows the borrower to bring their loan current by paying off overdue amounts to avoid foreclosure if they fall behind on payments. This right helps protect homeowners from losing their property due to temporary financial difficulties.

Rights of the Mortgagee (Lender):

• The mortgagee also has its own protection. To begin with, the lender can foreclose on the property in case the mortgagor defaults on the loan—i.e., if the borrower fails to pay as stipulated. Through foreclosure, the lender can take over the property and sell it in an effort to recover the outstanding loan balance.

Additional Concepts to Consider

Credit History and Loan Eligibility

The credit history of the mortgagor plays a critical role in securing a mortgage loan. A strong credit score will likely result in more favorable terms, such as a lower interest rate. Conversely, poor credit could result in a higher interest rate or even disqualification from receiving a loan. Lenders (or mortgagees) will assess this risk when deciding whether to approve a loan.

Types of Ownership

Another important aspect of mortgage agreements is the property’s ownership type. Whether the property is owned in sole ownership, joint tenancy, or tenancy in common, the mortgage terms can differ, affecting both the mortgagor and mortgagee.

Summary

To sum up, the difference between mortgagor vs mortgagee is straightforward: the mortgagor is the individual borrowing the funds to purchase a property. In contrast, the mortgagee is the financial institution lending the money. 

Without a clear grasp of who is the mortgagee and who is the mortgagor, navigating exam questions on real estate transactions, loan structures, and financial terms could be more challenging. 

Lexawise offers comprehensive exam prep tools designed to help you succeed, from unlimited practice tests to realistic simulated exams. With study resources that cover all the critical real estate concepts, you’ll be ready to tackle any question that comes your way on exam day. Keep your study momentum going with Lexawise!