Mortgagor vs. Mortgagee: What’s the Difference?

If you’re a first-time homebuyer, there are likely aspects of the real estate and mortgage process that you don’t fully understand. So at some point, you’ll probably come across some unfamiliar terms. For example, you might hear words like “mortgagor” and “mortgagee” thrown around often.

These terms sound similar, but they aren’t the same—and knowing the difference is key to understanding each party’s responsibilities.

In this article (Skip to...)

• Who is the mortgagee?
• Who is the mortgagor?
• Summary: Mortgagee vs mortgagor?

Who is the mortgagee?

When you’re ready to buy a house, in many cases, you’ll work directly with a mortgage lender.

This could be a bank, credit union, online lender, or mortgage company. This is the financial institution that provides the funds for your home purchase. Once you make an agreement with this company, the lender becomes the mortgagee.

After you apply for the loan, it’s their responsibility to determine your repayment term, interest rate, and your payment amount, which is based on factors such as the loan duration, the amount borrowed, and your down payment.

However, the mortgagee’s responsibilities don’t stop there. They also handle various other tasks related to your home loan. This includes administrative duties before closing, such as ordering the appraisal, verifying your employment and income, and reviewing your assets and credit to ensure you qualify for the loan.

After closing, they’ll manage your account by recording payments and ensuring that your insurance and property taxes are paid from your escrow account.

Since the mortgagee provides funding for the home purchase, they also have the right to take back the property, or foreclose, if you stop making payments.

Let’s say you take out a mortgage with your credit union. You’ll enter into a contract with the lender, in which case you’re expected to make timely payments until the loan is paid off. The mortgagee receives and tracks your payments, and once the entire loan is repaid, you’ll own the property outright.

But if you default and stop making payments, the lender can take back the property to recover the loan. This is because the mortgagee maintains a legal interest in the property until you fulfill your end of the agreement.

Who is the mortgagor?

Of course, the mortgage lender isn’t the only party involved in a home purchase—there’s also the borrower (or you), also known as the mortgagor.

As the person applying for a loan to buy a home, you promise to repay the funds over a certain period of time, whether it’s 15, 20, or 30 years.

You’re responsible for repaying not only the principal, but also the interest, which is the cost of borrowing the money.

But while it’s your property and you can live in it and do what you like, as already mentioned, the lender still has a legal interest.

In addition to paying the principal and interest, as a homeowner you’re also responsible for property taxes and homeowners insurance. Both expenses are typically included with your monthly mortgage payment and managed by the mortgagee on your behalf.

One thing to remember before buying a home is that mortgage lenders usually require homeowners insurance, which protects the property from damage.

Since they have a legal interest in the home, they want to ensure it’s maintained and protected for as long as you carry the loan. This also protects their financial interest. Your relationship with the mortgagee continues until you either pay off or sell the property.

The fact that a mortgage lender retains legal rights to a home until it’s fully paid off might not “sit well” with some people, leading some to think that owning is just “fancy rent.”

However, it’s important to remember that owners have far more rights than renters.

While it’s true that a lender can require homeowner’s insurance and foreclose for non-payment, you still own the property, which means you can make decisions that renters can’t—such as home improvements, interior design, curb appeal, etc.

Additionally, as you pay down the mortgage and your home appreciates, you build equity, which increases your personal net worth. And if you have a fixed-rate mortgage, your principal and interest payments will remain the same for the life of the loan.

There’s even the option to make extra “principal-only” payments to pay off the loan sooner, at which time you’ll only be responsible for property taxes, insurance, and maintenance.

For example, you might start off by making your standard payment, which covers the principal, interest, homeowners insurance, and property taxes. However, as your income grows, you might decide to make an additional principal-only payment of $600 per month.

By doing this, you could shave years off your original loan term.

Whether you stay in the home long-term or eventually sell, this benefits you. If you stay, you’re able to live mortgage-free sooner, freeing up cash for other goals. And if you sell, you’ll have more equity to put toward another property.

Summary: Mortgagee vs mortgagor

The bottom line

Knowing the roles of the mortgagee and mortgagor is important in any mortgage agreement. The mortgagee gives the loan and has a claim on the property, whereas the mortgagor borrows the money and makes the payments. By knowing your duties and rights as a borrower, you can handle the mortgage process better, making your home buying experience smoother.