What is a mortgage?

What is a mortgage?

• A. A short-term lease
• B. A loan secured by real property
• C. An investment strategy
• D. A type of insurance

Answer: (B)

A mortgage is best described as a loan secured by real property. In this arrangement, the borrower receives funds from a lender to purchase or refinance a property, and in return, the property itself serves as collateral for the loan. This means that if the borrower defaults on the loan payments, the lender has the legal right to take possession of the property through a process called foreclosure. Mortgages are typically long-term loans, often spanning 15 to 30 years, and they allow individuals and businesses to acquire real estate while paying back the borrowed amount over time, usually with interest. This makes home ownership more accessible, as borrowers can spread the cost of the property over many years rather than needing to pay the total purchase amount upfront. The other choices do not fit the definition of a mortgage. A short-term lease relates to renting property without a long-term financial obligation to purchase it. An investment strategy refers to a plan for investing capital with the goal of generating returns, rather than a specific financial instrument. Insurance is a financial product that provides protection against loss or damage, which does not correspond with the nature of a mortgage. Thus, the correct answer underscores the main function of a mortgage as a secured loan tied to real estate.

A mortgage is best described as a loan secured by real property. In this arrangement, the borrower receives funds from a lender to purchase or refinance a property, and in return, the property itself serves as collateral for the loan. This means that if the borrower defaults on the loan payments, the lender has the legal right to take possession of the property through a process called foreclosure.

Mortgages are typically long-term loans, often spanning 15 to 30 years, and they allow individuals and businesses to acquire real estate while paying back the borrowed amount over time, usually with interest. This makes home ownership more accessible, as borrowers can spread the cost of the property over many years rather than needing to pay the total purchase amount upfront.

The other choices do not fit the definition of a mortgage. A short-term lease relates to renting property without a long-term financial obligation to purchase it. An investment strategy refers to a plan for investing capital with the goal of generating returns, rather than a specific financial instrument. Insurance is a financial product that provides protection against loss or damage, which does not correspond with the nature of a mortgage. Thus, the correct answer underscores the main function of a mortgage as a secured loan tied to real estate.