When you purchase a home and go to online financial platforms like Finserv MARKETS to apply for a loan, the institution will keep all the original documents with them as security/guarantee and grant you the loan based on the paperwork you provide. Such loans are also known as mortgages. Normally two parties are involved when borrowing a loan – borrower and the lender. There are different forms of mortgages; the selection of mortgage generally depends on the borrower.
The most common arrangement is that the borrower takes money from the lender and pays back on a monthly basis. The lender keeps all the property related documents until the loan is paid off and this is called a simple mortgage.
Due to an unforeseen event, if the borrower fails to repay the loan the bank has certain rights on the property depending on the initial agreement they decide on. Learning how to reduce home loan EMI is an art but it is not very difficult.
What is Registered Mortgage?
In simple terms a registered mortgage is that category of loan where the borrower willingly gives full right of the property to the bank in case of a loan default. In such a scenario, you as a borrower have allowed the bank to dispose the property in whichever manner they desire if you default the loan. This is a more complex form of loan and the bank has far more rights over the property as opposed to a simple mortgage.
What is Equitable Mortgage?
Equitable or simple home loan is the most common form of home loan. In this scenario, when you borrow money from a lender, the property documents stay with the lender. The tenure of the home loan is 15-20 years long and the papers come back to you only after the complete repayment of the loan. During equitable mortgage, you give ownership of your property to your bank until you repay the whole amount. In case you default the loan you also allow them to take over your property.
A Memorandum of deposit of title deeds is created from the borrower’s end. This memorandum is the record of all the documents submitted to the bank, this also states that the borrower has submitted all the home loan documents willingly and a stamp duty is paid. The charge paid towards stamp duty is a called the MODT. Depending on the state you live in, the charges from 0.1% to 0.2% of the home value. It is also mandatory to record the MOD (Memorandum of Deposit) with an organization called CERSAI (Central Registry of Securitization Asset Reconstruction and Security Interest).
Difference between Equitable Mortgage & Registered Mortgage
There are different forms of mortgages such as equitable mortgage and registered mortgage. Before you make a loan application, it is important to understand the difference between Equitable Mortgage and Registered Mortgage.
|Factors||Equitable Mortgage||Registered Mortgage|
|Registration||Equitable mortgages are not registered||Registered mortgage are registered|
|Process||In Equitable Mortgage you have to buy a stamp paper||In registered mortgage, a borrower have to approach the sub registrar’s office.|
|Cost||Stamp Duty costs – 0.1% or 0.2% of home value||Its 5% of the home value|
|Affordability||It is less expensive than registered mortgage||It is more expensive than equitable mortgage|
|Bank Rights||if you fail to repay the loan, the bank takes over your property and auctions it off||If you fail to repay, the property is transferred to the bank and it can do whatever it wants to do with it.|
|Risk||Equitable mortgage is more risky than registered.||Whereas, registered mortgage is risk free because of the security that it provides to both the parties (lender & Borrower) on the property.|
Now you have evaluated which option is better apply now for a home loan at Finserv MARKETS.
How is an equitable mortgage created?
An equitable mortgage on an immovable property that can be created by a written deed. The deed acts as proof that the mortgagor has deposited the title – deeds of his property with the mortgagee. The bank then notified them with the intent to create security.
Is it necessary to register an equitable mortgage?
An equitable mortgage will not incur any stamp duty. A registered mortgage will entail stamp duty based on the amount lent or amount for which charge has been created. This mortgage does not satisfy all the requirements of the legal mortgage as per the law in force but is nevertheless entered into as per agreement. It gives the necessary right to the mortgage to file suit for non-payment.
What banks Prefer equitable or registered mortgage?
Instead having ample amount of benefits to both parties in equitable mortgage, banks prefer mainly registered mortgage because in equitable mortgage there are no records of the loan or the property in the sub registrar’s office. This leaves the possibility of the property being sold to a third party without fully repaying the loan. Hence, bank and many financial institutions consider registered over equitable. Many fraud cases has also been registered related to equitable mortgage.
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