Equitable Mortgage vs. Registered Mortgage - Which is Better?

When we buy a house, we can either make a down payment or take a loan to make the payment.  When we take a loan, most of the time the bank mortgages our property. It simply means they are in possession of our property until we repay the loan. In the event that we fail to repay the loan, the bank can auction the property off to a third party. Despite its slightly complicated  definition, most of us have heard of the term mortgage. However, few of us know of the terms equitable mortgage or registered mortgage.

Before we understand the key differences between the two terms, it is important to understand the definition and meanings of the two types of mortgages.

What is Equitable Mortgage

Equitable mortgage is a type of mortgage where the terms of the agreement are made solely between the mortgagor and the mortgagee. There is no third party or government agency involved. The term “equitable mortgage” is derived from the word equity which in this context means in the interest of justice.

What is Registered Mortgage

In this type of mortgage it is necessary to take the approval of the sub-registrar to finalize the agreement. Thus, the mortgagee and the mortgager agree to abide by a certain set of terms and conditions for the tenure of the loan which is set by a third party.

Equitable Mortgage vs. Registered Mortgage

Please note that the above is for your information only. Mortgage loans at SMFG India Credit are provided based on the applicant’s eligibility and the policy of SMFG India Credit at the time of loan application. Loans are at the sole discretion of SMFG India Credit.

Now that we have understood the terms, let us look at the similarities and differences.

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Similarities Between the Two Mortgages:

The similarities between the two mortgages are that in both cases the bank takes your original documents and returns them only when you repay the loan. In both cases, the lender has a right to sue for non-payment 

Difference Between Equitable Mortgage and Registered Mortgage:

1. Process: One of the key differences between the two processes is the making of the agreement itself. In an equitable mortgage you, the buyer of the property, have to buy a stamp paper. In a registered mortgage, you would need to approach the sub-registrar office for the same.
2. Stamp duty: One of the key differences between the two types of mortgages is stamp duty. In an equitable mortgage stamp duty is negligible and it comes to only 0.1 to 0.2% of the total loan amount. Sometimes the stamp duty is as low as 0%.  However, when it comes to a registered property, the stamp duty can be nearly 5% of the total loan amount.
3. What happens when you don’t pay: This is one of the key differences between the two processes. When you don’t pay off your loan in an equitable agreement, the bank auctions off your property. However, when you don’t pay off your loan in a registered mortgage, then the bank can do whatever it wants with it.

Now that we know the key differences between the two terms, let us understand which one would work for you based on certain key parameters.

1. Risk factor: There is no legal binding in an equitable agreement. Both parties are only bound by the agreement and nothing else, hence the risk is also higher. Likewise, in a registered mortgage there are legal provisions for both the lender and the borrower. Hence, the risk is lower and many times nil.
2. Bank preference: Banks would prefer a registered mortgage over a registered mortgage since there are legal provisions and risk is lower. Also, there are records of the property and lending in the sub registrar’s office.

Now you know that the registered mortgage is preferred over the equitable mortgage, you would wonder where one should take an equitable mortgage? After all, it is cheaper and the right to sue is available to both parties.

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If your loan is very high or you buy a property in tier 3 or tier 4 city or you have deep trust in the other party, then it is wise to go for an equitable mortgage.

This blog has explained to you the similarities, differences, the pros and cons of the two different types of mortgages. Both have their advantages and disadvantages.

In conclusion, whether you go for an equitable or registered mortgage make sure your money stays safe.