What is a mortgage?

A mortgage is specifically defined as a loan that is taken out to purchase real estate, where the property being acquired acts as collateral for the loan. This means that if the borrower fails to repay the mortgage, the lender has the right to take possession of the property through a legal process known as foreclosure. Mortgages are integral to the real estate market, as they enable individuals and businesses to purchase properties that they may not be able to afford outright.

The other options do not fit the definition of a mortgage. For instance, the second choice refers to lease agreements between landlords and tenants, which pertain to rental arrangements rather than the purchase of property. The third option discusses a plan for property renovation costs, which relates to property improvements, not financing. Lastly, the fourth choice concerning insurance for real estate properties describes a different financial instrument, protecting against loss, which is not how a mortgage operates. By understanding the specific nature and function of a mortgage, students can better comprehend its role in real estate transactions.