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 mortgages, mortgage meaning, mortgage types, and a lot more.
When you provide an immovable property as security for a loan, this arrangement is known as a 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 a mortgage has 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’.
Mortgage meaning in Hindi
The English term mortgage is the same as गिरवी, बंधक, and रेहन in Hindi.
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:
In a simple mortgage, the borrower promises to repay the loan he has borrowed from 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.
In a usufructuary mortgage, the borrower gives possession of the mortgaged property to the lender and authorizes 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.
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.
Mortgage by conditional sale
In the case of a 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 written form and must be registered.
Mortgage by title deed deposit of an equitable mortgage
In a mortgage by deposit of title-deeds arrangement, the borrower delivers bank documents of title to immovable property, with the 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 an 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 a notary.
A mortgage that is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage, or a mortgage by deposit of title deeds is called an anomalous mortgage.
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.