Who is considered a mortgagee?
- Definition of Mortgagee
Mortgagee is a term used to describe the person who borrows money from a lender to buy property. A mortgagee borrows funds, where as a mortgagor is the lender.
Typically, a mortgagee is any individual or persons who borrows money from a mortgagor to finance a home purchase. Typically, mortgagees are working adults who have a verifiable credit history, however, investors, businesses and corporations can also be mortgagees. The only requirement to be a mortgagee is that the person or entity is borrowing money from a lender to purchase a property.
Why is this term important?
Depending on their particular financial status, mortgagees will put 20% of their own money towards the purchase of a home (known as a deposit). The rest of the required money comes through a loan, known as a mortgage. The ratio between the money put down by a borrower and the money provided by the lender is known as the loan-to-value ratio.
To secure the best loan terms, a mortgagee must prove that their debt ratios are within certain parameters and that they are financially capable of paying back the loan to the lender. A mortgagee must also decide whether or not to choose a fixed- or variable-rate mortgage, the term (which is how long they commit to staying with the lender) and the overall length of the loan (known as amortization).
If a married or common-law couple purchases a home and both of their names are on the mortgage documents, then both are considered mortgagees. This means that both individuals are responsible for paying all the monthly bills associated with the mortgage. Failure to make these payments could lead to credit score reductions for both mortgagees and, eventually, a foreclosure on the home. A foreclosure occurs when a homeowner stops making loan repayments and the lender initiates a legal proceeding to take ownership of the property. This is legal because one of the requirements for a mortgage is that the mortgagee agrees to allow the property to act as collateral for the loan. If a mortgagee dies, the burden of payment will lie either with co-mortgagees or inheritors of the property.
Examples of term
A mortgagee is considered the borrower who receives money from a lender to complete a real estate transaction. Mortgagees will repay the loan which is provided as collateral by the mortgagee for their new home.
For example, if you want to purchase a townhouse in Richmond Hill, Ontario, and the seller has agreed to a sale price of $650,000, you would either require a cash payment of $650,000 to give to the seller on the closing date or you would need to apply for a loan. As the borrower, the loan documents would list you as the mortgagee.