The Collingwood – Blue Mountain Real Estate Blog

People often get confused by the difference between “mortgagor” and “mortgagee”.

It certainly is confusing because of the common language we use which is, all wrong.  When buying a home, we go to a lender “to get a mortgage” but actually, that is that is not what we are doing at all.

A mortgage is a financial claim against your property. You sign a document giving that claim to the lender, and in return they give you the money.
 
In effect, YOU are giving the lender something and that is, a personal promise to pay. It is YOU who mortgages the property.  The lender doesn’t GIVE a mortgage, they TAKE a mortgage.  They are taking a financial claim against your property and you are giving them a promise to pay.

So, you don’t go to a lender to “get a mortgage” but you do go to a lender to have them take a mortgage. The person who performs the action is the “or” or “er” actor. Think of “employer” or “donor”. That makes YOU, the borrower, the “mortgagor”. You’re doing the mortgaging. 

The lender on the other hand, takes your mortgage. And the recipient is always the “ee” figure. That makes the lender the “mortgagee”.
 
I read a tip somewhere that said you can remember the difference by noticing that “borrower” has two “o”s in it, and so does “mortgagor.” “Lender”, on the other hand, has two “e”s, and so does “mortgagee”.
 
So now you know.  Clear as mud?

Guest Post By David Larock

Friday’s much-anticipated meeting of European Union (EU) leaders in Brussels was the region’s latest attempt to reassure the markets that its financial crisis is being brought under control. Here are the highlights:

• Twenty-six of the EU’s twenty-seven member countries agreed to limit their future structural deficits to .5% of GDP (the UK rejected this proposal).
  Over-indebted member countries agreed to reduce their debt loads by one-twentieth each year.
  Failure to comply with either commitment will, in most cases, trigger sanctions and penalties.
  Participating countries agreed to submit their budgets to a pan-European body in charge of fiscal oversight to ensure compliance.
  EU members also agreed to boost the IMF’s reserves by another 200 billion euros and to move up the launch date for a new bailout fund, called the European Stability Mechanism, to next summer.

 But was it enough to reassure the markets? Based on their initial reaction, the answer appears to be “no”.

While monitoring EU sovereign budgets more closely should help prevent a future crisis, it will actually exacerbate the current one. Member countries must now hack and slash their budgets to bring them in line with new fiscal standards at the same time that the region is tipping into recession. These new austerity measures will hammer the EU’s fragile economies at the worst possible time, causing deficits to soar higher as growth slows sharply, and this is very likely to spook investors even more. Without economic growth, EU countries cannot get out in front of their spiraling interest-rate costs. The Germans got what they wanted, but the phrase “Be careful what you wish for” comes to mind.
 
The experts I read believe that there are only two remedies that will ultimately save Europe: 1) the European Central Bank (ECB) announcing that it will provide unlimited support to the sovereign debt of member countries (to scare off speculators), and 2) the EU launching a new euro bond that is backed by all member countries (which will give struggling member countries access to German-level borrowing rates).
Neither remedy appears imminent – Germany has adamantly opposed any notion of a euro bond, and the ECB reiterated just last week that it had no plans to step up its sovereign bond-buying programs. (The ECB did cut its benchmark interest rate by .25% last week, citing “high uncertainty”, and “substantial downside risks”…so at least there’s that.)

Five-year Government of Canada bond yields dropped another 6 basis points this week, closing at 1.33% on Friday (ahh…stability). We were hoping for a round of five-year fixed-rate mortgage cuts last week but instead, lenders have launched new promotions based on shorter-than-normal rate-hold periods (called “Quick Closes”). Gross spreads on standard five-year fixed rate mortgages are still as plump as jolly old Saint Nick, so we’ll hold out hope for a discount in borrower’s stockings in the near future (after all, with minuscule default rates borrowers have certainly been good this year).

Variable-rate mortgage holders saw the Bank of Canada (BoC) maintain its 1% overnight rate last Tuesday. The BoC’s accompanying commentary reiterated concerns over the “weakening external outlook” and there was nothing in the report to suggest any material change in its overriding views.

The bottom line: The EU’s latest summit made the threat of more sovereign defaults in the region less likely, while making the threat of a long and protracted recession all but inevitable. From a Canadian mortgage perspective, this is the best we could hope for. Sovereign defaults can spook global financial markets and drive up borrowing rates everywhere, and this was our greatest contagion threat. An extended period of European economic malaise isn’t anything to celebrate, but from a systemic risk perspective, it’s far better than the alternative.

David Larock is an independent full-time mortgage planner and industry insider. Visit his blog  for many more interesting articles and some great mortgage advice.