30 NOVEMBER, 2021

When you pledge your property to avail a loan against it, it is called a mortgage. In a mortgage, the lenders lend you money and retain the original documents of the property until you repay the entire loan amount. If you default on the loan repayment, the lender has the right to auction off your property and recover the loan amount. Therefore, typically, secured loans or mortgages have long repayment tenure and low-interest rates.

Also, called a loan against property, not many know the various types of mortgages.

Here we explain the difference between two mortgages - an equitable and registered mortgage. Read on.

What Is an Equitable Mortgage?

.‘Equitable’ is derived from the word equity, which means the interest of justice. This mortgage is a simple contract between a mortgagor and mortgagee (here, lender and borrower). In this mortgage type, you borrow money from the lender and furnish the documents of the property to them. The ownership documents remain with the lender until you repay the loan. These mortgages are usually for a time frame of 15-20, and during this tenure, your property documents remain with the lender.

What Is a Registered Mortgage?

In this mortgage, a third party is involved apart from you and the lender. In this mortgage type, you are required to voluntarily give the full right of the property to the lender. The lender has the ownership of your property, and they can use or dispose of the property in case of default. In this mortgage, you need to record the property mortgage at the sub-registrar office. When you repay the loan in full, the ownership of the property is transferred back to you.

Basis Equitable mortgage Registered mortgage

Registration

Equitable mortgages are not registered, and the two party is bound only by the agreement

A registered mortgage is registered with the sub-registrar and has legal provisions

Process Requirement

You need to pay stamp duty

You need to approach the sub-registrar for the mortgage

Cost

It is less time-consuming and cheaper

It is expensive and more time consuming.

Risk

It is a riskier form of mortgage as it is bound only by the agreement. The borrower can sell the property to a third party without the knowledge of the lender.

It is no risk-free mortgage. It provides security to both parties. The property mortgaged is registered and so the borrower cannot dispose of the property without repaying the loan amount.

Stamp duty

You need to pay a stamp duty of 0.1% to 0.2% of the home value.

You would have to pay a stamp duty of 5 % of the home value.

Understanding the difference between the two would help you opt for the suitable mortgage type as per your requirement. Usually, banks prefer a registered mortgage as it is safe and risk-free. However, if you are an old customer, and have a good relationship with the lender, you can also opt for an equitable mortgage. Keep these details in mind while applying for a loan against property for a hassle-free loan availing process.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.