What is the term for pledging property to a lender while retaining possession rights?

Hypothecation is the correct term for the practice of pledging property to a lender while retaining possession rights. In this financial arrangement, the borrower uses an asset as collateral for a loan but does not transfer ownership of that asset to the lender. This allows the borrower to maintain the right to use and benefit from the property while still providing the lender with a form of security in case the borrower defaults on the loan.

The other terms, while related to financing and property, do not accurately describe this specific situation. Collateralization generally refers to the broader concept of using an asset as collateral, which can include transferring possession in other contexts. An encumbrance refers to any claim or liability attached to a property, such as a lien, which doesn't specifically denote the act of pledging while retaining possession. Mortgaging specifically indicates the act of creating a mortgage, which does involve securing an obligation with property, but does not emphasize the aspect of retaining possession in the same way that hypothecation does.