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Mortgage: Definition, Example and Related Terms

What is a Mortgage ?

Think about when you want to buy something really big and expensive, like a business building, but you don't have all the money right now. A mortgage is a kind of loan that helps you do just that. It's a deal where a bank or other lender gives you the money to buy the big thing, and in return, you promise to pay them back, bit by bit, over a long time. If you don't keep your promise and stop paying back the money, the lender can take the big thing you bought and sell it to get their money back. That's the basic idea of a mortgage. In the world of business, mortgages are often used to buy buildings, land or other expensive items needed for the company to operate.

What's the difference between a loan and a mortgage?

A loan is a broader term that refers to any amount of money borrowed that is expected to be paid back with interest.

A mortgage on the other hand is a specific type of loan used to purchase real estate. Here are the key features that classify a loan as a mortgage

  • Secured by Real Property
  • Lien on the Property
  • Foreclosure Rights
  • Transfer of Title
So all mortgages are loans. Not all loans are mortgages.

Are mortgages used outside of real estate?

Mortgages are specifically tied to real estate because they must be tied to real property which is immovable such as land or buildings. The property serves as collateral for the loan. There are special legal frameworks such as foreclosure which are designed to deal with this type of asset.

There is something called a Chattel Mortgage which allows moveable assets such as vehicles or equipments to be purchased. In those circumstances, the legal mechanism on default would be Repossession. It's typically associated with vehicles or machinery or other high value assets.


  • Scenario Description
    Let's say a company wants to expand its operations and needs to acquire a new factory. The cost of the factory is $1 million, but the company only has $200,000 in cash. It decides to take out a mortgage for the remaining $800,000. In this scenario, the company would approach a bank or another lender and apply for a mortgage. If approved, the bank would give the company the $800,000 it needs to buy the factory. The company would then pay the bank back, plus interest, over a set period of time (like 15 or 30 years). The factory acts as collateral for the loan. If the company fails to make its mortgage payments, the bank can take possession of the factory and sell it to recover the money it lent.