Mortgagor vs. mortgagee: Key differences, rights, and roles

Buying a home introduces a wave of unfamiliar language and jargon looks nearly identical. It’s easy to muddle “mortgagor” and “mortgagee” while reading documents and signing contracts, but understanding them helps you know your rights and duties.

Discover the difference between mortgagor versus mortgagee, their roles, and their main responsibilities in the home buying process.

Who is the mortgagee, and who is the mortgagor?

In a mortgage agreement, the mortgagee is a lender and a mortgagor is a person borrowing money. Mortgagees are typically banks or financial institutions that approve a loan and hold a lien on property until it’s repaid. Mortgagors are the individual or organization receiving a loan, and can be homeowners, property investors, or business owners.

Both parties hold a stake in the property and the mortgage. While mortgagees maintain possession of the home until the loan is repaid, the mortgagor is the legal owner. This grants borrowers certain rights, like living in and selling the house, but lenders can still foreclose if the mortgagor fails to make payments.

Here’s a quick summary of the differences between mortgagee and mortgagor.

| **Aspect**      | **Mortgagor (Borrower)**                             | **Mortgagee (Lender)**                                  |
|-----------------|------------------------------------------------------|---------------------------------------------------------|
| **Role**        | Takes out the loan to purchase the property          | Provides the funds to finance the property              |
| **Title / Lien**| Holds legal title to the property                    | Holds a lien until the loan is paid in full             |
| **Cash flow**   | Makes monthly mortgage payments                      | Provides loan funds and manages escrow                  |
| **Risk**        | Risks losing the home if they miss payments          | Risks losing money if the borrower defaults             |

Who is the mortgagor in a mortgage contract?

The mortgagor is the person or party who mortgages a property, and is usually the one borrowing money from the lender. They have the right to live in the home and often have legal ownership. The term is nearly identical to “borrower,” with most people using them interchangeably. 

Responsibilities of a mortgagor

A borrower’s responsibilities extend beyond signing closing documents, and each one protects the lender’s investment and maintains the property’s value. Here are the mortgagor’s top duties:

— Submitting the application: Mortgagors must share accurate, up-to-date financial details, providing depth and context into their specific situation. This helps the lender understand the situation and apply the best possible loan terms.

— Providing proof of funds: Submitting a verification of funds letter from a bank proves they can comfortably pay closing costs and gives the mortgagee reassurance.

— Making payments: Committing to timely payments builds a stronger relationship with the lender and lets them maintain a consistent amortization schedule.

— Maintaining homeowners insurance: Carrying an active insurance policy covers the property against risks like fire or flooding, protecting the lender’s investment.

— Caring for the property: Handling regular maintenance and repairs prevents the home from losing value.

— Communicating hardship: Notifying the lender if they can’t manage payments lets the mortgagee protect their investment and provide assistance options, like forbearance or loan modification.

— Following contract terms: Adhering to the mortgage agreement upholds legal obligations and keeps the relationship strong. This includes making on-time payments and respecting restrictions, like limiting structural changes or avoiding certain pet types.

Rights of a mortgagor

Here are the main rights borrowers have in a mortgage agreement:

— Redeeming the property: This allows the mortgagor to reclaim the home, even after foreclosure, if they pay off the outstanding debt and any additional fees.

— Transferring to a third party: After reclaiming a home, this right lets borrowers give the property and mortgage to another person.

— Inspecting and obtaining documents: This entitles borrowers to review and receive copies of loan documents.

— Making additions and improvements: This allows homeowners to upgrade, repair, or build on the property within the mortgage agreement. For instance, a borrower may add a garden shed in the backyard, as long as they get the lender’s approval.

Who is the mortgagee in a mortgage contract?

The mortgagee is the lender, which could be a big national bank, a local credit union, or even a private party. They provide the funds and hold the legal right to the property until the borrower pays off the loan.

Responsibilities of a mortgagee

The mortgagee needs to follow lending laws and provide suitable, transparent loans to borrowers. Here are a lender’s main responsibilities:

— Checking finances: Confirming the mortgagor can manage the loan by verifying their income, assets, and debts through the underwriting process. This due diligence reduces the lender’s risk and provides fitting terms for the borrower.

— Approving terms: Examining the mortgagor’s financial details and the current market to decide interest rates, the amortization period, and the required down payment.

— Securing collateral: Placing a lien on the property until the loan is repaid to protect their investment.

— Issuing accurate mortgage statements: Providing borrowers with clear documents detailing repayments and balances.

— Complying with regulations: Following fair lending laws, including transparent document disclosure and fair loan access.

— Releasing lien at payoff: Removing the legal claim once the loan is satisfied.

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Rights of a mortgagee

Here are the lender’s main rights in a mortgage agreement:

— Seizing or selling the property: If the borrower defaults on the loan, this allows the lender to protect their investment by foreclosing or taking possession of the home.

— Receiving coverage for losses: This lets the mortgagee receive reimbursement for covered losses, even if the mortgagor invalidates the insurance policy.

— Transferring the mortgage: This allows the mortgagee to transfer the loan to another lender or investor.

— Holding legal title: In some states, this lets the lender hold legal title of the property until the loan is repaid. This means the homeowner has equitable title, which allows them to occupy and use the home.

Mortgagee vs. mortgagor: How they work together

Mortgagors and mortgagees have an ongoing partnership throughout the lifecycle of the loan. It starts when the mortgagor fills out an application. A suitable lender can review the documents, checking the borrower’s income and financial history as well as situation-specific details. 

Suppose a veteran seeks a bank that specializes in VA loans. This institution has a manual underwriting process that discovers valuable assets and low debt-to-income ratio, helping the borrower qualify for a favorable loan.

After the buyer finds a property, the lender appraises the home and checks it for any outstanding liens or claims to protect themselves and the buyer against legal issues. During this, the mortgagor’s main responsibility is maintaining stable finances and obtaining homeowners insurance to secure the mortgagee’s investment.

At the closing table, the mortgagee delivers the disclosure and the mortgagor approves and signs the paperwork. From here, the lender typically performs a service handoff, which transfers mortgage management to a loan servicer. 

This party then assumes the main responsibilities, including collecting installments and answering questions. Servicers also work with borrowers who anticipate late payments, offering options like forbearance or loan adjustment.

While management responsibilities change, the partnership between the mortgagor and mortgagee remains as long as the loan is open. This means both parties must still adhere to the terms and conditions of the mortgage until it’s fully repaid.

Enjoy a clear process with Better

Understanding the difference between mortgagees and mortgagors doesn’t just clarify rights and responsibilities, it helps you buy a home confidently. You can take even greater control of the process with Better, a digital mortgage lender that guides you every step of the way.

With Better, you can compare honest mortgage rates and find your budget range in a few clicks. Apply for pre-approval in as little as three minutes, browse loans, and track your progress from an online dashboard. We help match you with the right agent and find a favorable mortgage so you can close on your dream home faster than ever.

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FAQ

What’s the practical difference between a mortgagor and a mortgagee?

In simple terms, the mortgagor is the borrower securing money for a loan, and the mortgagee is the lender. This means mortgagors are often people buying homes, and mortgagees are usually banks or financial institutions.

Is a mortgagee the same as a loan servicer, and do terms change?

While the two can overlap, mortgagees and loan servicers are separate roles. Mortgagees provide funds and set terms, then transfer management duties to a servicer. The terms of the loan don’t change during this reassignment, including the interest and principal.