What is a Mortgage Deed? - Meaning, Types & Key Elements

If you own a property, you can obtain almost every type of credit against that property. The funding value depends on the property’s value, but you can get easy financing at reasonable interest rates. When a property owner asks for a loan against their asset, they must sign a mortgage deed with the lender, giving them the property’s legal rights in case they fail to repay the loan. They can continue using the property, but if they default on the loan, the lender may ask them to vacate the property, seize it, and sell it to recover the loan amount. Below, you will learn more about mortgage loans, deeds, and types.

What is a Mortgage Loan?

A mortgage loan involves collateral or security you pledge to a financial institution when borrowing money against it. Since the property has a high value, these loans have large amounts with longer repayment periods. Moreover, a loan against property interest rate is cheaper than unsecured loans due to the lower risk involved. As a borrower, if you fail to repay the loan, the loan provider has the legal right to seize the property and sell it to recoup the outstanding balance.

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What is a Mortgage Deed?

Mortgage deeds are legal documents or instruments that pass over a property’s legal rights to the loan provider, which they can exercise in case of a loan default. This document gives lenders the property rights to sell the foreclosed property and recoup their defaulted loan amount to protect their interest.
The person who mortgages a property against a loan is termed a mortgagor, whereas the person or party who lends a loan against the property is called a mortgagee. The mortgage deed contains all the loan terms and conditions involved. Registration of the deed is essential to give it legal validity. For registration, both parties must sign the deed, pay stamp duty, and at least two witnesses must attest to it.

How Does a Mortgage Deed Work?

Mortgage deeds allow lenders to hold a borrower's property as collateral until they repay the borrowed amount in full. The deed states that if the mortgagor fails to repay the loan on time, they have the legal right to claim the property's ownership and sell it to recover their financial losses. When entering a loan transaction, both parties agree upon loan size, repayment tenure, EMIs, and interest rate for total repayment. Parties must file the deed in court at a public registry office. Upon successful repayment, the document files as a “satisfaction of a mortgage”, stating that the mortgagee no longer holds interest in the property.

Importance of a Mortgage Deed

After understanding the mortgage deed meaning, you should know that it is necessary when a property owner loans money from a lending institution and transfers their property’s interest to the lender. In other words, when you borrow a loan against your property, the deed secures both parties’ interest and rights over the asset. Here are a few reasons why a deed is important:

• First and foremost, it determines the parties involved in a loan deal, including the borrower and lender, known as the mortgagor and mortgagee, respectively.
• The document enforces the lender's rights in court by ensuring that if the borrower defaults on the loan repayment, they can sell the property to get their payment.
• The deed provides a thorough investigation of the property's title and interest, helping determine the property's rightful owners.

Types of Mortgage Deeds

There are several types of mortgage deed options, which parties must sign depending on the mortgage loan type they select. Here are a few:

• Simple Mortgage Deed

  The mortgagor pledges an immovable asset to obtain a loan. The mortgagee enjoys the right to sell the property in case of a payment default.

• Usufructuary Mortgage Deed

  The lender receives the property’s possession rights. They can earn via profit or rent without any personal liabilities on the borrower.

• English Mortgage Deed

  It establishes the borrower’s personal liability and gives the lender the property’s rights if successful payment leads to recovery.

• Mortgage by Conditional Sale Deed

  The borrower sells the property, but the sale will turn void if they repay the loan successfully.

• Mortgage by Title Deed Deposit

  The borrower submits the property's title deed to the lender to avail of a mortgage loan against it.

• Anomalous Mortgage Deed

  A mortgage loan that does not come under any of these types of mortgage deed options is an anomalous deed.

• Commercial Mortgage Deed

  Entrepreneurs often use this deed to buy commercial properties like shops, office spaces, etc.

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