Difference Between Simple Mortgage and Equitable Mortgage

Understand the difference between simple mortgage and equitable mortgage. Explore the distinctions of simple mortgage vs equitable mortgage to make informed financial decisions.
Loan Against Property
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3 min
13 August 2024
Mortgages are an essential tool for securing loans. Understanding the difference between a simple mortgage and an equitable mortgage is crucial for making informed decisions. Whether you are a first-time borrower or an experienced investor, knowing these distinctions can help you choose the right mortgage type for your needs.

A mortgage allows you to borrow money using your property as collateral. The lender provides a loan against the value of your property, which you repay over time. Different types of mortgages have varying implications for your legal rights and obligations. This article delves into the specifics of simple and equitable mortgages, highlighting their differences.

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Introduction to mortgage types

Understanding the different types of mortgages can be overwhelming. Two common types are simple mortgages and equitable mortgages. While both involve using property as collateral, they differ significantly in terms of legal implications and processes. Let us delve into each type to understand the differences better.

Simple mortgage explained

A simple mortgage is a straightforward way of securing a loan. Here are its key features:

  • Legal documents: The borrower formally transfers the right to sell the property to the lender if the loan is not repaid.
  • Registration: Requires registration under the Registration Act, 1908.
  • Possession: The borrower retains possession of the property.
  • Clear terms: Terms and conditions are clearly defined in the mortgage deed.
  • Legal action: In the case of default, the lender has the legal right to sell the property.
For detailed terms, you can refer to the fees and charges applicable.

Equitable mortgage explained

An equitable mortgage, also known as a mortgage by deposit of title deeds, is simpler in process but different in nature:

  • No formal document: No formal mortgage deed is executed.
  • Title deeds: The borrower deposits the title deeds with the lender.
  • No registration: It does not require registration under the Registration Act, 1908.
  • Possession: The borrower retains possession of the property.
  • Legal recourse: In case of default, the lender must approach the court to sell the property.
For more about the process, visit how to apply for a loan against property.

Differences in legal rights and obligations

Legal documents:

  • Simple mortgage: Requires a formal mortgage deed.
  • Equitable mortgage: No formal deed, only deposit of title deeds.
Registration:

  • Simple mortgage: Mandatory registration.
  • Equitable mortgage: No registration is required.
Possession:

  • Simple mortgage: The borrower retains possession.
  • Equitable mortgage: The borrower retains possession.
Legal action:

  • Simple mortgage: The lender can directly sell the property.
  • Equitable mortgage: The lender must seek court intervention.

Applicability and usage

Simple mortgages are often preferred for larger loans or when clear legal documentation is necessary. They provide more security to the lender through formal registration and clear terms. Equitable mortgages are typically used for smaller loans or when a quicker process is required. They are less formal and do not require extensive paperwork.

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Advantages and disadvantages

Simple mortgage

Advantages:

  • Clear legal documentation.
  • Easier legal recourse for lenders.
Disadvantages:

  • Requires registration, adding to costs.
  • Lengthier process due to formalities.

Equitable mortgage

Advantages:

  • No registration is required.
  • Faster process with minimal documentation.
Disadvantages:

  • Less secure for lenders.
  • Requires court intervention for selling property.
Choosing between a simple mortgage and an equitable mortgage depends on your financial needs and circumstances. Simple mortgages offer clear legal security but come with additional costs and formalities. Equitable mortgages provide a quicker, less formal process but may involve more legal complexities in the case of default.

Consider your options carefully and choose the mortgage type that best suits your needs. Bajaj Finserv Loan Against Property can help you access funds easily, offering various benefits tailored to meet your financial requirements. Explore the offerings to make an informed decision and secure your financial future.

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Frequently asked questions

What is the difference between a simple registered mortgage and an equitable mortgage?
A simple registered mortgage and an equitable mortgage differ primarily in the way they are formalised and the degree of protection they offer to the lender. A simple registered mortgage requires formal registration with a governmental authority, thereby providing a clear legal standing. Contrarily, an equitable mortgage is typically created by handing over the title deeds of the property to the lender, without a formal registration process. Hence, while the latter might be simpler and less expensive to set up, it might not provide the same level of legal protection as a simple registered mortgage.

What is the difference between a mortgage and a simple mortgage?

A mortgage is a broad term referring to a legal agreement that allows a borrower to use their property as collateral to secure a loan from a lender. A simple mortgage, on the other hand, is a specific type of mortgage where the borrower agrees to pay back the mortgage loan through steady payments until the principal amount and interest rate is paid fully. Unlike other types of mortgages, a simple mortgage does not require the transfer of property from the borrower to the lender.

What is the difference between an equitable mortgage and collateral mortgage?

An equitable mortgage is a form of mortgage where the legal title of the property is not transferred to the lender, but the borrower provides the lender with the deeds of the property as a form of security. In contrast, a collateral mortgage refers to a loan secured by an asset other than the property itself. This could be a different piece of property, a vehicle, or other valuable assets. This means in a collateral mortgage, something other than the property being acquired, is put up as collateral.

What is another name for equitable mortgage?
An equitable mortgage is often referred to as a mortgage by deposit of title deeds. This name is derived from the practice of the borrower handing over the title deeds of the property to the lender to serve as the security for the loan, even though the legal ownership of the property isn’t transferred.

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