Real Estate Council of Alberta Fundamentals Practice Exam

What is the primary function of a mortgage in real estate?

1. Transfer of property ownership

2. Agreement to rent a property

3. Charge on land for security for a debt or loan

4. Assurance of rental income

The correct answer is: Charge on land for security for a debt or loan

The primary function of a mortgage in real estate is to serve as a charge on land that serves as security for a debt or loan. When a borrower takes out a mortgage, they receive funds from a lender, typically to purchase a property. The mortgage gives the lender a legal interest in the property until the debt is repaid. This means that if the borrower defaults on the loan, the lender has the right to foreclose on the property to recover the amount owed. In real estate transactions, a mortgage is crucial as it enables individuals to purchase properties that they might not have been able to afford outright. It allows for the leveraging of funds, where the property itself acts as collateral, ensuring that the lender's investment is protected. This function is essential in financing home purchases, as it broadens the scope of potential buyers by making home ownership accessible through loan financing. The other options describe different aspects of real estate but do not accurately capture the primary role of a mortgage. The transfer of property ownership occurs through a sale or deed, whereas an agreement to rent a property pertains to leasing arrangements. Assurance of rental income would be relevant in a context where an investor is looking at cash flow from rental properties but is not directly tied to the function of a