Mortgagor vs. Mortgagee: Know the Difference Between These Labels | Mortgages
Key Takeaways
- A mortgagor is someone who borrows money to buy a home.
- A mortgagee is someone who lends money to buy a home.
- A mortgagor is responsible for paying a mortgage and sticking to its terms, while a mortgagee sets the terms of the mortgage and collects payments.
Buying a home can be a complicated process. Not only do you have to find the right real estate agent, visit different properties and find a place that fits your budget, but you also have to make sure you understand the process of getting and finalizing a mortgage.
If you’re a first-time homebuyer, it’s a good idea to have a real estate attorney review your mortgage documents to make sure everything looks right. However, that’s generally not a requirement. If you’re signing a mortgage on your own, it’s important to understand the conditions of the mortgage and the meaning of various terms.
You may see the terms mortgagor and mortgagee in the course of reviewing your mortgage documents. Those designations sound similar and can be confusing. Here, we’ll review the difference between a mortgagor and mortgagee.
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What Is a Mortgagor?
A mortgagor is someone taking out a mortgage. It can be an individual person or multiple people, such as a married couple or even two friends. A mortgagor may also be referred to as a homeowner, borrower or homebuyer.
What Is a Mortgagee?
A mortgagee is the party that lends a borrower money to purchase a home. A mortgagee may also be referred to as a lender. A mortgagee can be a bank, credit union or another type of financial institution.
Casey Gaddy, a senior real estate agent with Keller Williams Empower based in Philadelphia with 10 years of experience, has an easy trick for remembering the difference between a mortgagor and mortgagee.
“I help clients remember by saying the mortgagor wants more money – they’re the borrower. The mortgagee charges a fee – they’re the lender,” he says.
What Rights, Protections and Responsibilities Does a Mortgagor Have?
As a mortgagor, you’re borrowing money to finance a home. This means you’re obligated to:
- Make your monthly payments according to your mortgage’s terms
- Maintain homeowners insurance coverage as a condition of having a mortgage
- Stay current on your property taxes
- Communicate changes in your financial situation to your mortgagee
Evan Luchaco, a Portland, Oregon-based home loan specialist at Churchill Mortgage with more than 10 years of experience, says, “The mortgagor, being the homeowner, has the right to ownership in the property so long as they continue to adequately meet the terms of the mortgage agreement.”
As a mortgagor, you’re entitled to the deed of your home once your mortgage is paid in full. You also have a right called equity of redemption. This means if your home goes into foreclosure, you can recover it provided you get current on your mortgage payments.
As a consumer, you also have the right to shop around for a mortgage and compare offers from different mortgagees. You can also negotiate the terms of your mortgage with your mortgagee.
What Rights, Protections and Responsibilities Does a Mortgagee Have?
A mortgagee is responsible for originating a mortgage, including:
- Reviewing mortgage applications
- Setting mortgage terms, such as length, interest rates and borrower requirements
- Providing a mortgagor with the documents necessary to put a mortgage in place
A mortgagee is also responsible for drafting a lien to put on a mortgagor’s property until the home loan is repaid in full.
Mortgagees can protect themselves by vetting mortgage candidates carefully before approving their loans. This generally means verifying that a mortgagor has:
- Strong credit
- A reasonable debt-to-income ratio
- A high enough income to keep up with ongoing mortgage payments
- A reliable, steady source of income
“The mortgagee, being the lending institution, has the right to receive payments based on the mortgage terms and adjust accordingly for things like changes in insurance and taxes,” Luchaco says.
Some mortgagees collect only enough money from mortgagors each month to cover their monthly loan payments. Others collect extra to go toward homeowners insurance and property taxes and pay those bills on mortgagors’ behalf.
“Additionally, the mortgagee has the right and ability to foreclose on the home if the mortgagor fails to adequately make payments, per the terms of the mortgage agreement,” says Luchaco.
Is a Mortgagee the Same as a Loan Servicer?
If you’re taking out a mortgage, you may hear the terms mortgagee and loan servicer used interchangeably. But are they the same?
“Sometimes, but not always,” Gaddy says. “The mortgagee is the lender or company that originally gave you the mortgage loan. At first, they might also be the one you send your payments to.”
However, he explains, it’s common for mortgages to get sold and for loan servicers to take over the administration of a mortgage. If that happens, you’ll receive a notice telling you where to make payments going forward. This can happen soon after signing your mortgage or years later.
As a mortgagor, you have the right to the same loan terms when your mortgagee uses a separate company to service the loan, Gaddy says.
“Your interest rate, balance and payment schedule all stay the same,” he says. “The biggest change is who you make your payments to and which online portal or system you’ll use to manage the loan.”
