What is the process of pledging property as collateral without giving up possession called?

The process of pledging property as collateral while retaining possession is known as hypothecation. This financial mechanism allows a borrower to secure a loan by using an asset as collateral without transferring the title or possession of that asset to the lender. For example, when a homeowner takes out a mortgage, they can use the property as collateral while still living in and utilizing it. This concept is significant because it protects the lender's interests while ensuring the borrower retains control over their property.

Amortization refers to the process of paying off a debt over time through scheduled payments, which involves interest and principal. Encumbrance generally refers to any claim against a property's title that affects its transferability, such as a mortgage or lien, rather than the act of securing a loan. A lien indicates a legal right or interest that a lender has in the borrower's property until the debt obligation is satisfied. Understanding these distinctions is crucial for anyone studying real estate finance, as they relate to how different aspects of property and financing interact.