What does the term "defeasance" refer to in the context of mortgages?

Defeasance in the context of mortgages refers specifically to the release of mortgage rights upon payment. When a borrower repays a loan secured by a mortgage, the lender relinquishes their claim to that property. This process signals that the borrower has fulfilled their obligations under the mortgage agreement, resulting in the removal of the lender's lien on the property.

This concept is crucial in real estate and mortgage law as it highlights the completion of the borrowing process and provides the borrower with clear ownership free from the encumbrance of the mortgage. Defeasance is especially prevalent in certain types of commercial real estate loans, where the process may include specific formalities to ensure that all parties recognize the satisfaction of the mortgage obligation.

The other options relate to different aspects of mortgages and loans but do not capture the essence of what defeasance specifically entails. For example, refinancing is about replacing an existing loan with a new one, calculating interest involves the methods utilized to determine interest payments on a loan, and ownership transfer processes refer to the legal changes that take place when property ownership changes hands, all of which do not directly define defeasance.