What's The Difference Between Equitable Mortgage And Registered Mortgage?

Navigating the world of home buying can feel tricky, especially when confronted with terms like “equitable mortgage” and “registered mortgage”. In their quest for the dream property, most homebuyers need help understanding these terms and their implications. 

Not only does it influence the security of your property rights, but it also has a significant financial impact. Let’s delve deep into these mortgage types and analyse the difference between equitable mortgage and registered mortgage to give you the knowledge you need for your property journey.

Understanding Equitable Mortgage

An equitable mortgage, also known as a mortgage by deposit of title deeds, is more informal than its registered counterpart. It’s favoured for its simplicity and expedience. But what exactly does it mean?

● Creation: In an equitable mortgage, the borrower hands over the property’s title deeds to the lender as a sign of intent. This act itself creates the mortgage. For instance, Rahul wishes to avail himself of a loan against his property. He deposits his property’s title documents with the bank. This act itself serves as the mortgage in the absence of any formal registration.

●Legal Framework: Equitable mortgages are primarily governed by the Transfer of Property Act. It’s essential to understand that while this form of mortgage is legally recognised, it’s not as concrete as a registered mortgage.

●Protection for Lenders: Even though the property’s title deeds are with the lender, if the borrower defaults, the lender might need to undergo a slightly more complicated process to take possession than registered mortgages. That said, with the title deeds in their possession, lenders have a significant amount of security.

●Cost: Since there’s no formal registration, the costs associated with creating an equitable mortgage are generally lower. For Priya, who’s keen on saving money, this could be an attractive option when considering a housing loan interest.

Understanding Registered Mortgage

As the name suggests, a registered mortgage involves a more formal and legally bound procedure. It demands a legal documentation process and is registered with the appropriate governmental authority.

●Creation: Unlike an equitable mortgage, a registered mortgage requires a formal agreement between the borrower and the lender. This agreement is then registered with the local registrar’s office. So, when Arvind chooses to mortgage his property, he must draft an agreement and get it registered, making the mortgage process legally binding.

●Legal Framework: Governed by the Registration Act and Transfer of Property Act, registered mortgages offer a stronger legal footing. Should any disputes arise, this type of mortgage is easier to enforce in a court of law.

●Protection for Lenders: With the agreement being legally registered, lenders have a more straightforward path to take possession of the property if a borrower defaults. It provides them with a higher security level when compared to equitable mortgages.

●Cost: Given the legal procedures and registration, the costs associated with registered mortgages are higher. While the housing loan interest might be a pivotal decision-making factor, understanding the associated costs is equally crucial.

Key Differences to Remember

Here are the key differences:

●Creation of Mortgage: Equitable relies on the mere deposit of title deeds, while registered demands formal registration.

●Legal Strength: Registered mortgages offer a stronger legal footing than equitable ones due to the registration process.

●Cost Implications: Equitable mortgages are generally cost-effective due to the lack of registration fees. However, despite being costlier, registered mortgages provide a higher sense of security to the lenders.

●Lender Protection: In default cases, registered mortgages give lenders a clearer path to claim the property than equitable mortgages.

Implications for Future Transactions

The type of mortgage you choose today can have ripple effects on your future financial transactions. For example, Priya, who selected an equitable mortgage to expedite the borrowing process. Years later, when she wanted to refinance her property, the lack of a clear title in public records posed challenges. 

In contrast, Rohan, with his registered mortgage, had a smoother experience when he decided to sell his property due to transparent documentation. Your mortgage type might not just be a short-term choice but a decision influencing property-related endeavours in the future.

Conclusion

Understanding the difference between an equitable mortgage and a registered mortgage is fundamental in making an informed decision about your property’s financial aspects. 

Whether prioritising speed and lower costs with an equitable mortgage or seeking a more legally robust and secure option with a registered mortgage, being aware of the nuances ensures you make choices that best align with your needs.