What is a mortgage and explain different types of mortgages
Mortgages are a specific kind of home loan where the lender lends money against the mortgage on the actual property. In the event that the borrower defaults on the repayment or otherwise violates the set terms and conditions, this grants them the right to purchase and sell the property. Yet it does contain different types of mortgage. Also, it’s important to understand the many types of mortgages as well as their true meanings.
This will assist you in making informed decisions and choose the best mortgage option.
Types of mortgages:
Mortgage and type of mortgage is specifically an important topic.
We will go into great detail on what a mortgage is, what types there are, and how questions based on this topic might be asked in the upcoming competitive exams in this article.
Mortgage loans are without a doubt the most alluring, preferred, and well-liked secured loan. They offer
an endless supply of features, advantages, and variety. This secured loan is offered by banks and NBFCs. To obtain money, the borrowers give lenders a pledge of their real estate or other assets. The loan amount granted is roughly 70% of the current property value. Mortgage loans come in a variety of forms depending on what the public will find appealing. Business organizations or individuals pledge their own property as security.
In India, there are mainly six different types of mortgages.
They consist of:
- Simple Mortgage
- English Mortgage
- Usufructuary Mortgage
- Mortgage by Deposit of
- Title Deeds
- Mortgage by Conditional Sale
- Anomalous Mortgage
1. Simple Mortgage
In this, the mortgagee* is not given possession of the mortgaged property. Yet, the mortgagee agrees to provide the mortgagor the right to sell the property in order to recover their investment in exchange for
the mortgagor’s legal obligation to repay the loan’s principal and interest.
Note: (* – the party which is granting a mortgage), (^ – the receiver of a mortgage)
2. English Mortgage
In this, the mortgagee receives the property once the mortgagor agrees to pay off the mortgages by a specific deadline. On the other side, the mortgagee gives consent to return the property to the mortgagor once they have paid the mortgage amount in line with the terms and conditions.
3. Usufructuary Mortgage
With this, the mortgagor gives the mortgagee control of the property until the mortgage debt is repaid and permits them to take the profits made from it (in the form of rent, etc.). In exchange, the mortgagee
undertakes to use the same as payment for the mortgage or in place of interest.
4. Mortgage by Deposit of Title Deeds
With this mortgage, the mortgagee transfers ownership of the movable property to the mortgagor in order to establish security over it.
5. Mortgage by Conditional Sale
When the mortgagor sells the property to the mortgagee with the understanding that the transaction will
become final if there is a repayment default, this is known as a mortgage by conditional sale. Additionally,
the sale will be voided upon payment in full, and the mortgagee will return ownership of the property to
the mortgagor.
6. Anomalous Mortgage
An irregular mortgage is one that doesn’t fall under any of the above mortgage types.
Difference Between Mortgage and a Loan
In a sense, loans are only available for specific purposes; for example, home loans are for building or buying a property, while student or educational loans are for paying for expenses. But, there are no limitations when it comes to mortgages; the borrower is free to utilise the money anyway they see fit. With loans, the lender will only lend a specified percentage of the property’s cost. The person is required to arrange for the balance as a down payment. With mortgages, the borrower can use
the money after using the mortgage – backed property as a collateral.
Loans don’t require collateral. Nonetheless, the mortgage repayment period may last up to 30 years. Even a small sum can be borrowed for a loan, although larger loan amounts are preferred for
mortgages.
It’s important to remember that a mortgage is a type of loan but not all loans are mortgages.
Difference Between Equitable Mortgage Loan and Registered Mortgage Loan
Before we understand the difference between the two, let’s understand what each of them means.
- Equitable Mortgage
In this kind of mortgage, the borrower and lender are the only parties to the mortgage agreement. There is no role of a third party or governmental body in this. The word “equitable” is borrowed from the word “equity,” which stands for the interests of justice. - Registered Mortgage
With this type of mortgage, unlike the equitable mortgage, the agreement must be approved by the sub- registrar in order for it to be valid. In this, a set of guidelines and terms for the loan’s duration are accepted by the borrower and lender.
Differences:
- Stamp Duty:
The stamp duty in an equitable mortgage is negligible and amounts to 0.1% to 0.2% of the total amount, and in some cases, it may even be 0%. Yet, the stamp duty for a registered mortgage might be as high as 5% of the total.
- Process:
The process used to create an agreement differs the most. A registered mortgage requires you to speak with the sub-registrar, while an equitable mortgage requires the buyer to purchase the stamp paper. Also, a registered mortgage involves the involvement of the third party, but an equitable mortgage is just between the buyer and seller.
- Consequences if you don’t pay:
In the case that you default on your mortgage, the bank is required to sell the subject property at public auction. Yet, if you don’t make the required payment on a registered mortgage, the bank is free to use the money anyway it sees fit.
Mortgage interest rates must also be kept in mind when negotiating mortgages. You may be aware with
terms like fixed-rate mortgage or adjustable mortgage rate.
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Difference Between Equitable Mortgage Loan and Registered Mortgage Loan
- Fixed Rates
Your interest rate is fixed and stays that way for the entire mortgage. If you start off paying 3.5% interest,
you will continue to do so until your mortgage is paid off or until you renew it. This makes managing your
finances simpler. - Adjustable Rates
The market determines how these interest rates change. These interest rates are first set for a period of five to ten years. After this time has passed, your interest rate is subject to market changes and varies every month.
Conclusion
Without a question, mortgage loans are the most appealing, popular, and well-liked secured loans. They provide an unlimited stream of benefits, options, and features. The lenders of this secured loan are NBFCs and banks. The borrowers pledge their real estate or other assets to lenders in exchange for
cash.
Around 70% of the current property value is covered by the loan amount. Several mortgage loan structures are available depending on what the general public will find appealing. Individuals or business entities pledge their own property as security.
Frequently Asked Questions (FAQ)
There are six different mortgage types in India, such as simple mortgage, usufructuary mortgage, English mortgage, mortgage by conditional sale, mortgage by title deed deposit, and anomalous mortgages, which are further explained below.
A mortgage loan is a secured loan that allows you to avail funds by providing an immovable asset, such as a house or commercial property, as collateral to the lender. The lender keeps the asset until you repay the loan.