What term describes granting real property as collateral for a mortgage loan?

The correct term that describes granting real property as collateral for a mortgage loan is hypothecation. In the context of real estate, hypothecation refers to the practice of pledging property as security for a loan without giving up possession of that property. When a borrower hypothecates their property, they retain ownership and the right to use it while allowing the lender to have a secured interest in the property. This means that if the borrower defaults on the loan, the lender has the right to take possession of the property through foreclosure, thus recouping their investment.

Other terms, while related to property and finance, do not specifically refer to the act of using real property as collateral. Encumbrance generally refers to any claim or lien against a property that may affect the owner's ability to transfer title, but it does not signify the credit arrangement itself. Foreclosure is the process that occurs if the borrower fails to meet the loan obligations, leading the lender to take back the property. Liability refers to the borrower's responsibility to repay the debt but does not pertain to property as security. Therefore, hypothecation is the precise term for this financial arrangement involving real property as collateral.