Deed of Trust vs. Mortgage: Key Differences Unveiled
Understand the key differences between a Deed of Trust and a Mortgage with this comprehensive article. Explore topics such as loan costs, transfer of ownership, lien holders, and more.
Deed of Trust vs. Mortgage: Key Differences Unveiled
When it comes to real estate, there is often confusion about deed of trust vs. mortgage and their differences. While both are legal documents that allow a lender to take ownership of a property if the borrower defaults on their loan, they do have distinct differences. Understanding the key differences between them is essential for any home buyer looking to secure financing.
What is a Deed of Trust?
A deed of trust is a legal document that authorizes a lender to take ownership of the property in the event that the borrower defaults on their loan. It is one of the most commonly used documents in real estate transactions, as it is a simple, easy way to secure the lender's interest in the property.
Unlike a mortgage, a deed of trust involves three parties: the borrower, the lender, and a neutral third-party trustee. This trustee holds legal title to the property until the loan is paid off in full. They are responsible for taking possession of the home in the event that the borrower defaults and selling it to pay the lender.
What is a Mortgage?
A mortgage is a loan that is secured to a property. The mortgage agreement outlines the terms of the loan and legally binds the borrower to make scheduled payments to the lender until the loan is fully paid off. A mortgage can be held by one or more lenders, depending on the situation.
Unlike a deed of trust, a mortgage only consists of two parties – the borrower and the lender. If the borrower fails to make payments, the lender can take legal possession of the property, but the lender is not responsible for selling it to repay the loan.
Key Differences
The key difference between a deed of trust and a mortgage is that a deed of trust involves a third-party trustee who holds legal title to the property, while a mortgage does not. This means that if the lender needs to take possession of the property in the event of default, the trustee is responsible for selling it to pay off the loan.
Furthermore, deed of trusts are more flexible when it comes to modifications and refinancing since the trustee can act quickly to approve and implement changes. With a mortgage, the borrower must go through a longer process with the lender for any changes to be made.
Conclusion
It's easy to see why understanding the differences between deed of trust vs. mortgage is so important. With both documents, it's essential to read and understand the loan agreement before signing it. Being aware and informed of the key differences between the two documents will help ensure that you make the best decision for your circumstances.