Equitable Mortgage vs. Registered Mortgage: Know the Difference
Many people dream of owning a home, and today, specialized financing from regulated NBFCs like Hero FinCorp makes this achievable. When you avail of a Home Loan, the lender secures the loan by creating a "charge" on your property. Under the Transfer of Property Act, 1882, you can generally choose between an Equitable Mortgage and a Registered Mortgage.
Understanding the Equitable Mortgage vs. Registered Mortgage distinction is vital for your financial planning and cost management.
What is Equitable Mortgage?
An Equitable Mortgage (also known as Mortgage by deposit of title deeds) is defined under Section 58(f) of the Transfer of Property Act. It is a type of financing arrangement where the borrower (mortgagor) mutually decides to deposit the original title documents with the lender (mortgagee) to create a security interest. Unlike other forms, it does not strictly require a written, registered deed for the creation of the charge in many Indian states, provided the intent to create security is clear.
How Does Equitable Mortgage Work?
In an Equitable Mortgage, the borrower willingly transfers the original property title deeds to the lender. This creates a constructive charge. While a formal sale deed is not registered at the Sub-Registrar’s office in some jurisdictions, the lender must still report the charge to CERSAI within 30 days to prevent fraudulent multiple lending on the same property. If the borrower defaults, the lender retains the right to initiate recovery proceedings under the SARFAESI Act, 2002.
Also Read: Quick Guide to Mortgage Loans
What is a Registered Mortgage?
A Registered Mortgage, often called a "Deed of Mortgage," is a formal arrangement where the borrower executes a mortgage deed that is officially recorded with the Sub-Registrar of Assurances. This provides public notice that the property is encumbered.
How does Registered Mortgage Work?
To complete a Registered Mortgage, you must create a formal charge by registering the mortgage deed at the office of the Sub-Registrar having jurisdiction over the property location. This process involves extensive paperwork and the payment of applicable stamp duty and registration fees as per state-specific laws, such as the Maharashtra Stamp Act or Delhi Stamp Act.
Once the loan is repaid in full, a "Deed of Reconveyance" or "Release Deed" must be registered to clear the title. If a default occurs, the registered deed provides a clear legal path for the lender to take possession without proving the "intent" of the mortgage in court.
Equitable Mortgage vs. Registered Mortgage: Key Differences
| Parameters | Equitable Mortgage | Registered Mortgage |
| Registration | Not mandatory at the Sub-Registrar (varies by state), but CERSAI entry is mandatory. | Mandatory registration at the Sub-Registrar's office. |
| Process | Simple deposit of title deeds with a Memorandum of Entry (MOE). | Formal execution of a Mortgage Deed signed by both parties. |
| Cost Involved | Lower; Stamp duty usually ranges from 0.1% to 0.5% (state-dependent). | Higher; Stamp duty can range from 0.5% to 5% of the loan value. |
| Public Notice | No public record at the Sub-Registrar; records exist with CERSAI. | Provides absolute public notice; anyone can verify the encumbrance. |
| Lender's Rights | Enforceable through the SARFAESI Act for notified towns. | Direct legal rights with a registered claim on the property title. |
| Risk Profile | Moderate for borrowers; requires trust in the lender's document custody. | Low risk; clear legal framework for both parties. |
Why Banks & Regulated NBFCs Often Use Registered Mortgages
Lenders often prefer Registered Mortgages for high-value transactions or Loan Against Property (LAP) due to:
- Legal Certainty: It creates a permanent public record, making it impossible for a borrower to sell the property without a NOC (No Objection Certificate).
- Priority of Claim: A registered charge usually takes precedence over subsequent claims under the Transfer of Property Act.
- Transparency: As a regulated NBFC, Hero FinCorp ensures all mortgage types comply with RBI’s Fair Practices Code, ensuring borrowers receive a Key Fact Statement (KFS) to understand their liabilities.
Understanding Other Mortgage Variations
- Fixed-Rate Mortgage: Interest remains constant throughout the tenure.
- Floating-Rate Mortgage: Interest rates fluctuate based on the lender’s benchmark (e.g., Repo-Linked Lending Rate - RLLR).
- Simple Mortgage: The borrower personally binds themselves to pay the loan without delivering possession of the property.
Which Type of Mortgage Is Better?
The choice depends on your budget and the lender's policy. Equitable Mortgages are cost-effective for standard Home Loans in notified cities. However, Registered Mortgages offer the ultimate "peace of mind" regarding title clarity. Most home loan borrowers in India prefer Equitable Mortgages to save on high stamp duty costs, provided the lender is a reputable, RBI-regulated institution.
Advantages & Disadvantages
Mortgage
- Pros: Significant savings on registration fees; faster processing; minimal paperwork.
- Cons: Lesser transparency for third-party buyers; mandatory CERSAI registration still applies.
Registered Mortgage
- Pros: Absolute legal protection; clear title history; easier to transfer or top-up loans.
- Cons: High upfront cost (Stamp Duty); time-consuming registration process.
Frequently Asked Questions (FAQ)
How Is An Equitable Mortgage Formed?
The lender forms an equitable mortgage by accepting the deposit of original title deeds with the intention to create security. A "Memorandum of Entry" (MOE) is recorded in the lender’s register as proof of the transaction.
Who can do an equitable mortgage in India?
Any property owner in "notified towns" as specified by the State Government under Section 58(f) of the Transfer of Property Act can opt for this.
What is the validity period of a mortgage in India?
Under the Limitation Act, 1963, the period for enforcing a mortgage is 12 years from when the money becomes due. However, the mortgage remains a valid encumbrance until the debt is satisfied or the "Right of Redemption" is exercised.
Is CERSAI registration mandatory for Equitable Mortgages?
Yes. Under RBI guidelines, lenders must register all equitable mortgages with CERSAI within 30 days to prevent systemic fraud and "double financing" on the same asset.
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