Final answer:
In a mortgage agreement, the mortgagee has the right to require repayment of the loan and interest. If payments are not made, the mortgagee can utilize power of sale or foreclosure to recover funds. Collateral provides security to the lender and may be seized should the borrower default on the loan.
Step-by-step explanation:
The mortgagee, usually a bank or financial institution, does indeed have the right to be paid the agreed-upon principal sum in addition to interest as specified in the mortgage document. If the borrower does not make payments as required, the mortgagee has certain legal remedies to recover the owed money. Two primary remedies are the power of sale and foreclosure. With power of sale, the mortgagee has the right to sell the mortgaged property without taking possession of it, to recover the debt. In contrast, foreclosure is a legal process by which the mortgagee obtains ownership of the property and may sell it to recover the loan balance. Collateral, such as property or equipment, ensures that the bank has security against the borrower's failure to repay; this collateral can be seized and sold if necessary.
If interest rates rise or a borrower is late on loan payments, the attractiveness of the loan diminishes to potential buyers of the loan. In these cases, the loan may be sold for less. A borrower may secure a cosigner to reassure the lender, whereby the cosigner legally pledges to repay the loan if the original borrower defaults. Banks often require a down payment as a commitment from the buyer and to reduce their own risk. Typically, a 20% down payment is advised.