What does hypothecation mean without the complicated wording?
Staff Q&A from the 63Hours team.
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It means pledging an asset as security while retaining possession. A borrower can continue using a home even though it secures a loan. That is different from physically handing collateral over to the lender. The term describes the security arrangement; it does not mean the borrower can ignore loan obligations or that foreclosure happens without legal procedures.
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Discussion prompt: Does the borrower keep possession of the pledged asset?