What is the Differences Between Equitable Mortgage and Registered Mortgage

With the ongoing inflation, everything is getting expensive. And so is real estate. Every person wishes to have a house of their own, to call it their home. Although with such high prices, it is nearly impossible for everyone to have a house of their own, the process of taking up home loans has made it much simpler for people to purchase a house, and fulfill their dreams.

In exchange for getting a loan, you need to provide collateral. The new house purchased acts as the collateral; thus, it is safe to say that you have mortgaged it. The lender has the rights over the property and keeps the deeds until repayment is complete. Thus, in case you fail to repay the loan taken, and/or default on the loan, they have the right to repossess/seize the house.

A contract for such an arrangement is made. There are 2 types of mortgage home loans.

1. Equity Mortgage.
2. Registered Mortgage.

Let us understand the meaning of these types of mortgages in brief.

What is Equitable Mortgage?

The name of this type of mortgage is derived from the word “equity”, which in this setting means the interest of justice. As it is clear that an agreement is made, in this type of mortgage, the agreement is made between 2 parties i.e. the mortgagor and the mortgagee. The terms of the agreement are decided and settled amongst these 2 parties only. No third party or government agency is involved in the same.

How Does Equitable Mortgage Work?

For an equitable mortgage, you as the borrower need to sign a legal agreement declaring that your property title deed is now transferred to the lender’s name. This means that a charge is created driven by a mutual agreement for the transfer, instead of the act of registration. In case you fail to repay your funds, the lender can sell off the collateral in the market for recovery. In this case, all rights over the property are transferred to the lender to take up any decision.

What is a Registered Mortgage?

A registered mortgage is also known as a “deed of trust.” In this type of mortgage, the agreement made is decided by neither of the parties involved. A third party sets the terms and conditions for the tenure of the loan and the agreement. After the approval of a sub-registrar, the final agreement is made.

A borrower can choose among these 2 types of mortgages. It depends on the type of deal and terms one is looking for.

How does Registered Mortgage Work?

In a registered mortgage, the borrower and sub-registrar have a legally signed agreement in which the former creates a charge on the property in question as a token of proof that the property is being given to the lender as collateral. Only when the entire loan amount is paid back with full interest will the borrower regain possession of the property. Else, the lender can auction it off. However, it is to be duly noted that throughout the tenure of the loan, the lender has 0 ownership rights over the property in question.

Difference between Equity Mortgage and Registered Mortgage:

As we have understood the type of mortgages available, let us understand the difference between them. The following will help us have a clear understanding of the differences between the 2 types of mortgages-

1. Parties involved:

There are only 2 parties involved in an equity mortgage i.e. the mortgagor and the mortgagee. The terms are set up and finalized as per these 2 parties only. On the other hand, is a registered mortgage, the terms are set up by a third party under certain rules and regulations. An approval from the sub-registrar is also required.

2. Registration:

An equity mortgage deal does not need to be registered. A registered mortgage is registered mandatorily.

3. Stamp paper:

In both mortgages, stamp paper is required. While in an equity mortgage, the stamp paper is purchased by the buyer, in a registered mortgage, a stamp paper is bought from the sub-registrar’s office.

4. Cost of stamp duty:

The cost of the stamp duty in an equity mortgage ranges between 0.1 to 0.2% of the loan amount or the home cost. In a registered mortgage, the stamp duty applicable is roughly 5% of the loan value or the home price.

Must Read: What is Stamp Duty on Home Loan?

5. Pocket-friendly:

While comparing the stamp duty prices, it is clear that the cost involved in registered mortgages is higher compared to equity mortgages. Thus, a registered mortgage is not easy on the pocket.

6. Property right:

While taking up a mortgage, the borrower gives up the right on the property and it is transferred to the lender as collateral. In an equity mortgage, if the borrower fails to pay any installment, the lender has the right to take over the property and place it for an auction. Similarly, in a registered mortgage, in case of non-payment, the lender has the right to take over the property.

7. Uncertainty:

In both mortgage deals, risk weighs in as a factor. But when compared, the risk involved in an equity mortgage is higher as compared with a registered mortgage, as both parties are bound by an agreement. Registered mortgages offer more security when compared to equity ones, as there are legal provisions involved for both borrower and lender.

Conclusion:

We hope this blog has helped you in understanding the difference between Equitable and Registered mortgage. Keep the above details in mind while applying for a mortgage loan. Check your eligibility with SMFG Grihashakti for a hassle-free loan availing process.

Must Read: Know the Different Types of Mortgage Loan