Which term describes the use of property as collateral for a mortgage?

The term that describes the use of property as collateral for a mortgage is hypothecation. This concept refers specifically to the practice where a borrower pledges an asset, in this case, real property, to secure a loan without the need to transfer possession of the asset to the lender. In a mortgage, the homeowner retains use and possession of the property while the lender holds a lien against it, meaning that if the borrower defaults on the loan, the lender has the right to take possession of the property through foreclosure proceedings.

Understanding hypothecation is crucial for real estate professionals, as it highlights how mortgages function in the lending landscape. It emphasizes the security aspect of borrowing, providing lenders with assurance that they can recover their investment if necessary. This makes hypothecation a fundamental concept in both real estate transactions and mortgage lending.