Difference between Sale and Mortgage

Key difference: When one is looking in to buy property, there are two main ways that they can pay for it. One is direct sale, where the buyer would pay the seller the whole amount of the property outright and take possession of the property. Another is a mortgage, where essentially the mortgage lender will pay the seller, and the buyer would come to a sort of agreement to pay back the lender over a number of years.

When one is looking in to buy property, there are two main ways that they can pay for it. One is direct sale, where the buyer would pay the seller the whole amount of the property outright and take possession of the property. Another is a mortgage, where essentially the mortgage lender will pay the seller, and the buyer would come to a sort of agreement to pay back the lender over a number of years.

Investopedia defines mortgage as β€œA debt instrument that is secured by the collateral of specified real estate property and that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large purchases of real estate without paying the entire value of the purchase up front.” 

Or rather in simpler terms as β€œIn a residential mortgage, a home buyer pledges his or her house to the bank. The bank has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the home's tenants and sell the house, using the income from the sale to clear the mortgage debt.”

Essentially, in a mortgage, the lender, which is most cases is the bank, actually owns the home. The lender purchases property and buyer buys the property from the lender by paying them monthly installments to cover the principal amount, as well as interest on the principal. In case, the buyer cannot pay those installments, for any reason, the lender has the right to evict the buyer from the property and to foreclose the property to cover its losses. 

Image Courtesy: assetagents.com.au, rowlettmortgagelending.com

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