Finance

What is the primary purpose of a mortgage or deed of trust?

ATo transfer ownership of the property to the lender

BTo pledge the property as collateral (security) for a loan✓ Correct

CTo establish the purchase price of the property

DTo convey title to the buyer at closing

Explanation

A mortgage or deed of trust pledges real property as collateral to secure repayment of a loan. The lender has a security interest — not ownership — in the property.

People Also Study

Key Terms to Know

Deed of Trust

A security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.

Deed

A written legal instrument used to transfer ownership of real property from one party (grantor) to another (grantee).

Loan-to-Value Ratio (LTV)

The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.

Discount Points

Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.