Equitable Mortgage - Advantages & Disadvantages

Purchasing a house can often involve taking a loan from a lending institution. The borrower mortgages the property to the lender as security, and it remains in the lender’s possession until the borrower repays the loan. The lender can auction off the property to a third party if the borrower fails to repay the loan taken against mortgaging that property.Before delving deeper, you should know that title deeds refer to original property ownership documents, such as a sale deed, partition deed, gift deed, and other associated documents.A mortgage can be of two types - equitable or registered.

• Equitable Mortgage The terms of an equitable mortgage agreement are solely made between the borrower and the lender. No third party or statutory agency is involved in an equitable mortgage agreement.
• Registered Mortgage A registered mortgage requires the approval of the sub-registrar to finalise the agreement between the borrower and the lender. Thus, both parties agree to abide by specific terms and conditions set by a third party during the loan tenure.From the aforementioned definition, it must be clear that an equitable mortgage agreement is relatively simpler to execute as it doesn’t require any legal registration. Therefore, it is the preferred mortgage agreement between the borrower and lender.

1. The borrower creates an equitable mortgage by depositing the title deed of immovable property with the lender. The lender sanctions the loan amount and holds the property as security in return until the borrower fully repays the loan.
2. The concerned parties, in this case, the borrower and the lender, execute a memorandum of deposit of title deeds.

• Although a charge on the property is created, no legal procedure is involved.
• The registration of the memorandum of deposit of title deeds is not necessary.
• While the memorandum of deposit of the title deed is not registered, you are still required to pay the stamp duty in some states.
• An equitable mortgage can be executed only in places notified by the concerned state governments.

• Less Expensive You don’t have to pay any registration fees. Stamp duty charges can also be very low in some states. Moreover, charges are sometimes payable after the loan account is closed.
• Easy Return of Title Deed You can easily take back the possession of the title deed from the mortgager once you successfully repay the loan.
• Less Documentation Since no registration process is involved during the mortgaging of the property or its release after the completion of the loan repayment, the documentation process is less exhaustive compared to a registered mortgage.

The borrower's integrity is paramount in equitable mortgage agreements as the borrower can dupe the lender by selling the mortgaged property to a third party by concealing mortgage information. As a result, all the mortgage liability is transferred to the new owner, who might not be able to clear off the mortgage.In such a scenario, the lender might find it challenging to locate the actual borrower, resulting in long-term legal entanglements that might result in rising NPAs (Non-Performing Assets) for the lender.

You can consider applying for an home loan equitable mortgageif you are confident of repaying the loan amount in time. Moreover, you are unlikely to face legal hurdles if you have a clean financial track record with a healthy credit score.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.