Mortgages vs. Deeds of Trust: Understanding the Key Differences

Jun 20, 2024, written by Dennis Shirshikov

Understanding the intricacies of real estate financing is crucial. Two common terms you'll encounter are "mortgage" and "deed of trust." While they both act as security instruments for loans, their differences are significant and worth understanding, especially for potential homebuyers. 

What a Mortgage Is

A mortgage is a legal agreement between a borrower and a lender (typically a bank or financial institution) that enables the borrower to obtain funds for purchasing a property. 

In this arrangement, the borrower holds the legal ownership of the property, while the lender has a lien or claim on the property as collateral for the loan. This agreement outlines the loan's terms and conditions, including interest rates, repayment period, and the consequences of defaulting.

Key characteristics of a mortgage:

What a Deed of Trust Is

A deed of trust, also known as a trust deed or a deed to secure debt, is a security instrument used in real estate transactions. It involves three parties—the borrower (trustor), the lender (beneficiary), and a neutral third party, the trustee. The trustee holds legal title to the property until the borrower repays the loan, at which point the title transfers to the borrower.

Key characteristics of a deed of trust:

Key differences between a mortgage and a deed of trust:

Understanding these differences is vital for anyone in the real estate market. Whether in a mortgage or a deed of trust state can significantly impact foreclosure procedures and timelines.

Bottom Line

Grasping the distinctions between a mortgage and a deed of trust is essential for navigating real estate financing. A mortgage involves a two-party agreement with a judicial foreclosure process, while a deed of trust is a three-party arrangement with a trustee and typically follows a non-judicial foreclosure process.

Understanding these differences can significantly affect foreclosure procedures and timelines, crucial for potential homebuyers to make informed decisions in the real estate market.

This article was written by
Dennis Shirshikov

Related Posts

See all posts
Need Help with Property Management?

Need Help with Property Management?

Get the most from your vacation home with Managed by Summer, a full-service property and revenue manager that performs 20% better than market averages.

Learn how it works