What is a Home Loan?

A home loan (also called a mortgage) is a legal contract made between a lender and a borrower that uses property as collateral to secure the loan. The lender can take possession of the property if the borrower fails to pay the prearranged home loan payments.

Generally, a home loan is obtained from a lender to purchase a home. The loan is secured against the home you are buying and the lender's interests are registered on the certificate of title. This protects the lenders and in simple terms means that you can not sell your house until the loan to the lender is repaid. This is a complex legal subject and your legal adviser can explain the full legal requirements and implications of a mortgage.

The home loan is secured by a mortgage. A mortgage is a form of security taken over real estate and land. It gives the lender the right to repossess the real estate or land if the borrower does not repay the loan. This is a complex legal subject and your legal adviser can explain the full legal requirements and implications of a mortgage.

When considering a loan, the borrower should be familiar with the terms recourse and nonrecourse loan, secured and unsecured debt, and dischargeable and non-dischargeable debt.

US traditional mortgages are usually non recourse loans. Nonrecourse debt or a nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. A US home equity loan may be a recourse loan for which the borrower is personally liable. This distinction becomes important in foreclosure since the borrower may remain personally liable for a recourse debt on a foreclosed property.

Home equity loans are secured loans. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to satisfy the debt by regaining the amount originally lent to the borrower. Credit card debt is an unsecured debt such that no asset has been pledged as collateral for the loan. Using a home equity loan to pay off credit card debt essentially converts an unsecured debt to a secured debt.

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