Which term refers to property pledged as security for a loan?

The term "hypothecation" is used to describe the process of pledging property as security for a loan while retaining ownership of the asset. In a hypothecation agreement, the borrower offers their property to the lender to secure a loan, which means that if the borrower defaults on the repayment, the lender has the right to seize the pledged property as a means of recovering the owed amount. This term specifically applies to situations where the borrower continues to use the property during the term of the loan, distinguishing it from other forms of security where the property may be taken.

Understanding hypothecation is vital for those entering the real estate and finance industries since it impacts how loans are structured, the rights of borrowers and lenders, and the overall risk factors associated with lending practices.