Know What it is and How it Works in 2023

Home loan and mortgages are two words sometimes interchangeably used. However, both are different from each other and should not be confused. In this article, we try to explain everything about mortgage.

What is mortgage? 

When you provide an immovable property as a security for a loan, this arrangement is known as mortgage.  Mortgage basically refers to offering a guarantee or collateral against a loan. 

Section 58 (a) of the Transfer of Property Act, 1882, defines mortgages as ‘the transfer of an interest in specific immovable property for the purpose of securing the payment of money by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability’.

In his book, ‘The Law of Mortgages in India’, Rashbehary Ghosh says mortgage have two aspects – ‘In the first place, it is a promise by the debtor to repay the loan and as such, it is a contract which creates a personal obligation. Secondly, it is also a conveyance, since it passes to the creditor a real right in the property pledged to him. However, the right created in the land is only an accessory right, intended merely to secure the due payment of the debt’.

See also: Key facts about the Transfer of Property Act, 1882

Mortgage meaning in Hindi

The English term mortgage is the same as गिरवी, बंधक and रेहन in Hindi.

All about relinquishment deed

Types of mortgage

Even though the basic idea behind all mortgages remains the same, their types vary because of the way an interest in the property is transferred to secure a loan. Based on this differentiation, mortgages have been divided into six different types. These include:  

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Simple mortgage

In a simple mortgage, the borrower promises to repay the loan he has borrowed by a bank or any other money lending agency, without providing the possession of the mortgaged property. The lender would, however, be free to sell this property to recover his dues if the borrower fails to repay his debt according to the pre-set clauses of the mortgage agreement.  

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Usufructuary mortgage

In an usufructuary mortgage, the borrower gives possession of the mortgaged property to the lender and authorises him to retain such possession until payment of the mortgage money. However, the property ownership papers remain in possession of the borrower and not the bank.

See also: What Is Usufructuary Mortgage?

English mortgage

In an English mortgage, the borrower promises the lender to return the loan amount on a specific future date while transferring the property absolutely to the lender. On his part, the lender is obliged to re-transfer the mortgaged property to the borrower on payment of the loan amount. Even though the property might remain legally in possession of the lender, the borrower can still occupy the premises under the provisions of an English mortgage.

See also: What is English mortgage?

Mortgage by conditional sale

In case of mortgage by conditional sale, a property owner sells his property to a bank to secure cash, but has the right to recover his property once he repays the loan amount on a pre-set date. This means that the sale by the original property owner becomes “absolute” only if the original property owner is not able to repay his debt on the set date.

According to the transfer of property act, “no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document, which effects or purports to effect the sale”. This means the contract has to be in a written form and must be registered.

Also read all about the applicability of SARFAESI Act on home loan default

Mortgage by title deed deposit of equitable mortgage

In a mortgage by deposit of title-deeds arrangement, the borrower delivers to a bank documents of title to immovable property, with intent to create a security. In this case, registration of the instrument is not required as in other forms of mortgage. This form of mortgaging is also known as equitable mortgage. Also called an implied or constructive mortgage, an equitable mortgage is basically an oral confirmation from the property owner to the lender about the former’s intent of creating a charge on the property. Even though no legal document is executed or registered in the records of the registrar, it can be created through notary.

See also: What Are Registered And Equitable Mortgages?

Anomalous mortgage

A mortgage that is not a simple mortgage, a mortgage by conditional sale, an usufructuary mortgage, an English mortgage or a mortgage by deposit of title deeds is called an anomalous mortgage. 

See also: All about reverse mortgage loans

Home loan versus mortgage loan

As mentioned earlier, home loans are often considered to be the same as mortgages. But, they are not so. Any financial arrangement where you provide an immovable property as collateral to secure a loan is known as a mortgage. This makes home loans a type of mortgage only—the property you buy acts as the security against the loan for the bank. In case you fail to repay your loan, the bank, which already has in its possession your property papers, will sell off the property in the open market and recover its dues.   

Check out our detailed guide – Are Home Loan and Mortgage Loan Different? 

How does a mortgage work?

As in true of any type of credit, there is an interest the borrower has to pay against mortgages. The mortgage must also be repaid within the bank specified repayment tenure. If the borrower makes willful defaults on the mortgage payment, the bank can sell off the mortgages property to recover losses.

Average mortgage rates in 2023

In 2023, borrowers in India can get mortgages at an annual interest ranging 8% to 11.50% for a repayment ranging between 3 to 20 years. Borrowers can get mortgage loan of up to Rs 25 crore in 2023.

How to compare mortgages?

By comparing interest rates and processing charges, borrowers will be able to get themselves a more financial prudent mortgage deal. When comparing mortgages, don’t go only by interest rates; also factor in the bank’s credibility. Also factor in the processing fee to arrive at the overall pricing.

7 things to look for in a mortgage loan

1. Go with a lender with an impeccable track record.
2. Maintain a good credit score.
3. Calculate your mortgage loan eligibility.
4. Choose the most suited type.
5. Also decide on the repayment tenure based on your monthly income potential.
6. Don’t borrow too much just because your can.
7. Go for a fixed rate if rates are on the lower side. Otherwise, floating rate of interest works better.

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