Hypothecate
A financial term that refers to the act of using an asset, typically a valuable one like real estate or securities, as collateral to secure a loan.
To pledge specific real or personal property as security for an obligation without surrendering possession of it.
It’s important to note that while the asset is hypothecated, the ownership remains with the borrower, but the lender has a claim on it until the loan is repaid in full.
In a typical house purchase, the buyers pay a portion of the purchase price with their own cash and borrow the balance from a lending institution. The lender requires the buyers to hypothecate the property or pledge it as security for repayment of the loan, which repayment is accomplished by use of a mortgage or trust deed. The borrowers retain the rights of possession and control, and the lender secures an underlying equitable right in the pledged property.
A long-term tenant could hypothecate the tenant’s leasehold rights as security for a loan. The lender could even use its rights in a receivable mortgage as collateral for some loan to the lender.
