Equitable Mortgage vs Registered Mortgage: What’s the difference?
3 min read
Apr 26, 2024
Difference between an equitable mortgage and registered mortgage lies in their legal documentation, ownership and recognition. Securing a Home Loan for property has become a common necessity. When you opt for a Home Loan (or mortgage), you undergo various procedures to pledge your assets and repay the loan.
To help you make the loan process easier and less complicated, let us decode the common jargon involved in the process. Let us also explore the distinctions between equitable mortgage and registered mortgage.
About Equitable Mortgage and its Functioning
Derived from the term ‘equity’, an equitable mortgage is a type of mortgage where the borrower offers their property as a security for getting a loan. The borrower does not transfer the ownership of the property to the lender.
In this type of mortgage, the lender holds the property documents till the entire loan is repaid. If the borrower fails to do so, the lender has the right to sell the property in an auction to recover the due loan amount. The lender has a claim over the property while the borrower still retains the legal title.
This type of mortgage is governed by the rules and regulations stated in the Transfer of Property Act of 1882, Section 58(f). The borrower and the lender mutually agree upon the terms and conditions of an equitable mortgage agreement. And there is no involvement of any third parties, such as a government body.
About Registered Mortgage and its Functioning
In this type of mortgage as well, the borrower uses their property as collateral to get a Home Loan. However, in this legal arrangement, a third party with a government authority is involved. The agreement of this registered mortgage includes the interest rate, tenure, repayment schedule, borrowed amount, etc.
With the legal agreement in place, the lender gets the legal title on the property and receives priority over other creditors. The aim of creating such an agreement is to help the lender protect their rights in case of failure of repayment and help maintain transparency in the transactions.
In this type of arrangement, the borrower registers the mortgage on the property with the sub-registrar giving the legal rights to the lender. In case of a loan default, the lender can do whatever they want with the property. But when the borrower completes the entire repayment of the loan amount, they get the property ownership back.
Equitable Mortgage vs Registered Mortgage
| Parameters |
Equitable Mortgage |
Registered Mortgage
|
| Registration |
It is not registered with a government body like a land registry. |
It has the involvement of a third-party government body, and the registration is submitted to the sub-registrar. |
| Cost of Stamp Duty |
It costs less than a Registered Mortgage. The stamp duty and registration charges vary for each state in the country. |
It is more expensive than Equitable Mortgage. The costs of stamp duty vary from state to state. |
| Process |
The process is quicker and does not require a formal mortgage deed. |
This is a time-consuming process and requires a formal mortgage deed. |
| Risk |
This is riskier for both the borrower and the lender. |
This is a secure process for both the lender and the borrower, as there is a public record for the same. |
Conclusion
The difference between equitable mortgage and registered mortgage is significant and you, as a borrower, should be well aware of the processes, costs, and risks involved in the two.
Also Read: Types of Home Loans: 5 different kinds of Home Loans
Frequently Asked Questions (FAQs)
How are Home Loans tied to mortgage types?
A registered mortgage is less risky and offers enhanced legal protection; hence, lenders extend loans at lower rates. On the other hand, equitable mortgages, due to their higher risk, may be subject to higher interest rates.
What are the eligible types of properties for equitable mortgages?
Various types of properties are eligible for equitable mortgages in India, such as residential, commercial, and vacant land. However, it is up to the discretion of your lender.
Which is the ideal mortgage in India?
A Home Loan is a common type of mortgage in India. Depending on the lender, the types of mortgages they offer will vary.
How much does it cost for equitable mortgages?
Since there is no involvement of a third party in this type of mortgage, the cost is considerably lower than a registered mortgage. You will have to pay the stamp duty charges based on the current market value of the property.
What is the validity period of an equitable mortgage?
The validity of this is 12 years from the date of creation.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
