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Hypothecation

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Definition of 'Hypothecation'

When a person pledges a mortgage as collateral for a loan, it refers to the right that a banker has to liquidate goods if you fail to service a loan.  The term also applies to securities in a margin account used as collateral for money loaned from a brokerage.
Investopedia Says

Investopedia explains 'Hypothecation'

You are said to "hypothecate" the mortgage when you pledge it as collateral for a loan.

Related Definitions

  •

    Collateral

    Properties or assets that are offered to secure a loan or other credit. Collateral becomes subject to seizure on default.
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  • Loan

    The act of giving money, property or other material goods to a another party in exchange for future repayment of the principal amount along with interest or other finance charges. A loan ...
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  • Mortgage

    A debt instrument that is secured by the collateral of specified real estate property and that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are ...
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    • Pledged Asset

      An asset that is transferred to a lender for the purpose of securing debt. The lender of the debt maintains possession of the pledged asset, but does not have ownership unless default ...
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    • Rehypothecation

      When a broker pledges hypothecated client owned securities in a margin account to secure a bank loan.
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