Definition of loan

What is a loan?

A loan is the the temporary provision of money (usually at interest). It is derived from the following meanings:

  • lend: give temporarily; let have for a limited time; “I will lend you my car”; “loan me some money”
  • loanword: a word borrowed from another language; e.g. `blitz’ is a German word borrowed into modern English

Definition of loan

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time. The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt.

But a loan can also be

A loan which is technically in default but under which the lender (mortgagee) is attempting to assist the borrower (mortgagor) in restructuring the terms of the loan or the time of repayment rather than proceeding with foreclosure.

What is a mortgage loan

A mortgage (Law French for “dead pledge”) is a type of loan to finance the purchase of real estate by contract, where there is an agreement to give up an interest in something if you fail to perform some duty. It is used as a method by which individuals or businesses can buy residential or commercial property without paying the full value upfront. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral (also called hypothecation) for the loan. The mortgagor’s lien on the property expires when the mortgage is paid off in full.

Mortgage and “home loan” are often used interchangeably. However, the mortgage is really the agreement that makes your home loan work; the bank will not lend you hundreds of thousands of dollars unless they knew they could claim your home in the event of your default.