Gambling on Repayment
If you’ve ever dealt with a banker you would find that they have many a colourful word in their lexicon and some of the oft repeated ones are ‘pledge’, ‘hypothecation’ and ‘mortgage’. These three words are interchangeably used and are almost impossible to differentiate for the common man. All three deal with charge creation but have a subtle difference that helps them to establish their uniqueness.
In the case of a pledge it is pertinent to note that the possession of the property is transferred to the lender. Generally a pledge relates to only moveable property. A classic example of a pledge would be a ‘gold loan’, wherein you deposit the gold with the bank and the take it back on repayment of the loan.
A hypothecation differs from a pledge in the sense that the borrower continues to retain possession of the property and also enjoys its benefits. Car loans can be cited as an example for hypothecation, because in case of a car loan you continue to use the car and repay the loan side by side.
A mortgage differs from a hypothecation in the sense that it relates to immoveable property. An apt example of a mortgage would be a house loan. The Transfer of Property Act, 1882 defines mortgage as,
“A mortgage is a transfer of interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of a loan, existing or future debt or the performance of an acknowledgement, which may give rise to pecuniary liabilities”
The borrower (or transferor) may be termed as the mortgagor, while the lender (or transferee) may be termed as the mortgagee. Some of the common types of mortgages are as follows,
- Simple Mortgage.
- Mortgage by Conditional Sale.
- Usufructuary Mortgage.
- English Mortage.
- Mortgage by Deposit of Title Deeds.
- Anomalous Mortgage.
The agreement in which the mortgage is entered into is termed as the ‘mortgage deed.’ Some of the salient points of a ‘mortgage deed’ are as follows,
- Name and address of the parties to the contract.
- Recital of the title of the mortgagor and the agreement for loan.
- Terms of repayment.
- Clause that indicates that the property in question is being mortgaged in favour of the mortgagee.
- Clause that detail the responsibilities of the mortgagor(including indemnifying the mortgagee from liability for the same.) with respect to insuring the property, maintain it in good and saleable condition and payment of taxes, duties and other payments that relate to the property.
- Clauses that bar the mortgagor from granting the property on lease.
- Duration of the mortgage.
- Clauses that enable the mortgagee to appoint a receiver on his behalf.
- Clauses that detail the responsibility of the mortgagee to re-transfer the property in the name of the mortgagor on settlement of the amount due.
- Any other clause that the parties to the contract may deem fit.
So the next time you want to put your house on the line for obtaining a loan it would be advisable to check of the points covered in this list. Happy Borrowing!