When You Take Out A Mortgage, Your Home Becomes The Collateral
Whenever applying for a mortgage or loan, you might be required to put up some collateral as an assurance that you would repay the lending agent (promisor). Using a high-value item, for instance, a house, as collateral for a loan is considered as an added layer of safety for the creditor.
How Does Collateral Work?
Before granting you a loan, a lender will want to know if you can repay it. As a result, most of them demand some security. This security is known as collateral, and it reduces the risk for creditors. It aids in ensuring that the debtor meets its financial obligations.
