What Is a Mortgagee?
A mortgagee is a lender: specifically, an entity that lends money to a borrower for the purpose of purchasing real estate. In a mortgage transaction, the lender serves as the mortgagee and the borrower is known as the mortgagor.
Key Takeaways
- A mortgagee is an entity that lends money to a borrower (also known as a mortgagor) for the purpose of purchasing real estate.
- To limit its risk, a mortgagee creates a priority legal interest in the value of the mortgaged property, allowing it to seize it if the mortgagor defaults on the loan.
How a Mortgagee Works
Most people take out a mortgage to finance the purchase of a residence or commercial building. To mitigate its risk, the lender in the transaction creates a priority legal interest in the value of the property, substantially lowering the likelihood that the mortgagee will not be repaid in full if the borrower defaults on the loan. This is accomplished through a perfected lien and title ownership.
A mortgagee represents the interests of the lending financial institution in a mortgage deal. Lending institutions offer a variety of mortgage products to borrowers, constituting a significant portion of loan assets in both individual lenders and the credit market overall.
Mortgage Lending Products
Mortgagees can structure mortgage loans with either a fixed rate of interest or a variable rate of interest. Most mortgage loans follow an amortization schedule that provides steady monthly cash flow to the lending institution in the form of installment payments until the loan is paid off at the end of its term. Standard fixed-rate installment mortgage loans are typically the most common. Meanwhile, adjustable-rate mortgage loans can be offered as a variable-rate mortgage product.
Lenders may also issue non-amortizing loans, which are generally not considered qualified mortgages and carry higher risk. These loans can have fixed or variable rates, deferring principal cash flows for the borrower to a single lump-sum payment. Throughout the loan’s duration, interest payments may or may not be required. Popular types of non-amortizing mortgage loans include balloon payment loans and interest-only loans. Mortgage loans are among the most popular types of secured loans in the credit market.
Protections for Mortgagees
In a mortgage loan, the mortgagee possesses rights to the real estate collateral associated with the loan, providing the lender with protections against default. Nevertheless, this requires legal provisions for seizing the collateral if default occurs. Mortgagees include a perfected lien and integrate title rights into a mortgage lending contract to facilitate this process.
A perfected lien is drafted by the lender’s legal counsel, allowing the mortgagee to obtain the real estate associated with the mortgage loan if the mortgagor defaults. This lien is filed and recorded with the appropriate agency, granting the mortgagee the rights to easily secure the real estate collateral. In a secured mortgage loan, the mortgagee is also the named real estate property owner on the property’s title. With the lien and property title, a mortgagee swiftly acquires legal rights and institutes specific procedures for foreclosing and vacating the property if needed.
Related Terms: mortgagor, perfected lien, amortization schedule, variable interest rate, qualified mortgage, default.
References
- Cornell Law School Legal Information Institute. “Mortgage”.
- North Carolina General Assembly. “Chapter 44A Statutory Liens and Charges”, Pages 17-22, 35.
- Consumer Financial Protection Bureau. “Understanding Loan Options”.
- University of California Office of Loan Programs. “Loan Terminology Glossary”.
- Chase. “What Is Mortgage Amortization?”
- McKinsey & Company. “Five Trends Reshaping the US Home Mortgage Industry”.
