What is a mortgage?

A mortgage is defined as a legal agreement that allows an individual to borrow money to purchase property, typically real estate. In this arrangement, the borrower receives funds from a lender, often a bank or financial institution, and in return, the property itself serves as collateral to secure the loan. This means that if the borrower fails to repay the loan, the lender has the legal right to take possession of the property through a process called foreclosure.

Mortgages are integral to real estate transactions, as they enable individuals to buy homes without needing to pay the entire purchase price upfront. This makes home ownership more accessible, as most buyers can pay off the mortgage over time, typically through monthly installments that include both principal and interest.

Understanding this concept is important for individuals looking to navigate the home-buying process or enter into financial commitments involving real estate. The other choices presented do not accurately describe a mortgage; they refer to different aspects of real estate and finance, such as rental agreements, property valuation processes, or tax payments, none of which encompass the full definition of a mortgage.