North Carolina Building Contractor License Practice Exam

What is a common financial instrument used in real estate transactions that requires repayment?

1. Bond

2. Note payable

3. Mortgage

4. Equity share

The correct answer is: Mortgage

In real estate transactions, a mortgage serves as a financial instrument that secures a loan used to purchase property. It involves a borrower obtaining funds from a lender to buy real estate, and in return, the property itself is used as collateral. This means that the lender has a legal claim on the property until the borrower repays the loan fully. The mortgage agreement stipulates that the borrower must repay the borrowed amount, along with interest, over a specified period. Unlike a bond, which is a debt security typically used by corporations or governments to raise capital, or an equity share, which represents ownership in a company and does not require repayment, a mortgage is specifically designed for real estate transactions. A note payable is a broader financial term representing an obligation to pay a certain amount, but it does not inherently include the collateral aspect tied to real property, as mortgages do. Therefore, the mortgage is the most appropriate answer in the context of secured loans used to finance real estate purchases.