A mortgage is an interest transferred by the borrower (mortgagor) to the lender (mortgagee) as the repayment of the loan. A mortgage is secured against an immovable property, typically real estate. In the event of failure to repay the loan according to the terms agreed between the mortgagor and the mortgagee, the lender has the right to take possession. Some common elements of a mortgage are:-
- Transfer of an interest.
- Transfer of a specific immovable property.
Types of mortgage
1. Simple mortgage
2. Mortgage by conditional sale.
3. Usufructuary mortgage.
4. English mortgage.
5. Mortgage by deposit of title deeds.
6. Anomalous mortgage.
In a simple mortgage, the borrower or mortgagor binds himself to pay the money of the loan and agrees that in case he fails to repay the loan, the lender or mortgagee is entitled to the sale of the asset.
Mortgage by conditional sale
In mortgage by conditional sale, the mortgagor sells the mortgaged property on condition that on default of payment by a specific date- The sale becomes absolute. However, if the borrower repays the loan, the owner transfers the property back to the borrower. Property consultants in Mohali will help you understand the mortgage by conditional sale in more detail.
In a usufructuary mortgage, the mortgagor binds him to deliver the possession back to the mortgagee and gives him authority to possess the property until the mortgage payment is done. The lender can receive any rent or profits that come from the property on-
a. Lieu of the interest
b. Payment of the mortgage money
c. Partly on behalf of the interest and partly on behalf of the mortgage money.
The mortgagor promises to pay the money on a certain date and transfer the property to the mortgagee, but it is subjected to a proviso that the mortgagee will re-transfer the property to the mortgagor. You must know about all the mortgages while buying a residential property in Mohali oranywhere else to make a better decision.
Mortgage by deposit of title deeds
Mortgage by deposit of title deeds is the type of mortgage in which the borrower deposits the property title deeds to the lender as a security. In this mortgage, the lender retains the document until the borrower repays the loan.
An anomalous mortgage is one that is not simple, one that is not a mortgage by conditional sale, one that is not a usufructuary mortgage, one that is not an English mortgage, or one that is not a mortgage deposit of title deeds. It is a combination of two or more than two types of mortgages that we have explained above.
Mortgages are further classified into two types, as per the transfer to the title.
1. Legal mortgage
A legal mortgage is a mortgage in which the lender has the right to the property until the borrower completes the interests/payments. In case the borrowers fail to make monthly payments, the lender has the legal right to seize the property. However, when the payment is completed, the title is transferred to the borrower/mortgagor. This method is considered expensive, as it involves things like registration charges and stamp duty.
2. Equitable mortgage
An equitable mortgage is a mortgage that does not meet the requirements of a legal mortgage. In this type of loan, the lender transfers the title of the property to the borrower, creating a financial charge. This arrangement is based on a mutual agreement between the lender and borrower and does not require a formal registration. However, if the borrower fails to repay, the lender has the right to auction the mortgaged property.
Which is better- a legal or equitable mortgage?
The legal mortgage provides more security to lenders, but equitable mortgages are less expensive and more flexible. You need to consider your goals, financial situation and risk tolerance before deciding between legal or equitable mortgages. For example, if you are looking for inexpensive mortgage options and are comfortable with risk, pick the equitable mortgage. However, if security and legal protection are your priority, a registered mortgage will be perfect for you.
By understanding different types of mortgages, you can make a decision that aligns with your financial situation and goals. Work with professionals and consider your long-term financial well-being before choosing a mortgage option, as the right mortgage will help you realise your dream goals and secure your future.