Foote Title Group – Collateral
Collateral, sounds like a big fancy word and it’s really not all. Collateral means the lender is going to loan you money to purchase a lot, a home, do a construction loan to build a home or refinance your current home and it’s a lot of money, so they want to make sure that they have something to hold in exchange for giving you all of that money. What they ask for in exchange is the right to use your piece or property (if there is no home on it) or your home so, if you don’t make those payments they will have something that they can sell to recuperate their loan. This is very similar to having a loan on your car, or a boat, or a motorcycle. The lender is looking for an item to secure their loan against to ensure that they have some protection if you don’t make those payments
So if you weren’t able to make your payments and went into default they would take over that property and prepare it to sell to recuperate their loan funds. This would again be in comparison to a vehicle loan that if you weren’t making the payments they would come and repossess that vehicle to sell it to recuperate their loan.
Your home or that vehicle is considered collateral. Therefore it is the item that the lender secures an interest in to protect their outstanding loan interest. They hold this interest while you continue to owe any part of the loan to ensure that that loan gets repaid in full.