Fullerton India Credit Co. Ltd. is Now SMFG India Credit Co. Ltd.

All You Need to Know About Equitable Mortgage

Published on Jul 24, 2024Updated on Sept 26, 2024

All You Need to Know About Equitable Mortgage

Equitable mortgages are a flexible way for property owners to use their property equity or home equity to secure a loan, without transferring ownership. However, the title deed has to be delivered to the lender, which acts as collateral. This method can be simpler and quicker compared to traditional registered mortgage loans where ownership is temporarily transferred to the lender. Therefore, it is important for engaging in real estate transactions to understand the equitable mortgage meaning and how they work. Here, we will define equitable mortgages and their importance in real estate, explain how they work in detail, and discuss their pros and cons. We will also take a look at the judicial rights associated with movable and immovable property.

Importance of Equitable Mortgages in Real Estate

The importance of equitable mortgages in real estate lies in their ability to offer an accessible and quick way to secure loans using property as collateral. This method of equitable charge enables property owners to get the necessary funds while retaining ownership, making it a preferred option in many real estate dealings. 

How Does an Equitable Mortgage Work?

Equitable mortgages usually involve the borrower depositing the title deed or ownership documents with the lender. The lender then provides the loan based on the agreed terms, such as interest rates and repayment schedules. During the loan term, the borrower retains ownership of the property, while the lender holds the title deeds as security. If the borrower repays the loan as agreed, the title deeds are returned, and the mortgage is discharged. However, if the borrower defaults, the lender can seek a court order to sell the property and recover the loan amount. This process offers a flexible and efficient way for borrowers to access funds. Unlike registered mortgages, it does not make the debt publicly known. 

While equitable mortgages can be beneficial in terms of quick processing, privacy, and the ability to retain property ownership, it is crucial to understand the repayment terms and the legal consequences involved.

Pros and Cons of Equitable Mortgages

Pros:

  • Creating an equitable mortgage is generally a quicker process than formal mortgages. 
  • Borrowers retain ownership of their property while still securing a property loan.
  • The terms of an equitable mortgage, such as interest rates and repayment schedules, can be adjusted to suit the needs of both the borrower and the lender. 
  • Equitable mortgages can offer greater privacy since they are not registered publicly.

Cons:

  • By not being registered in public records, equitable mortgages may provide less legal protection compared to registered mortgages.
  • If the borrower defaults, the lender can still foreclose on the property. Further, the process can be more time-consuming and complex compared to registered mortgages.

Judicial Rights Associated With Movable and Immovable Property

Judicial rights associated with movable and immovable property differ based on their legal classification and treatment under the law. Immovable property (lands or buildings) rights typically include ownership, transfer, exclusive possession, use, development, and legal protection against infringements. 

Movable property (vehicles or furniture) are similar, but ownership transfer procedures are generally simpler and less formal. They can also be used as collateral.

Both categories share rights such as seeking legal remedies, enforcing contracts, addressing inheritance issues and potentially dealing with an equitable lien. The latter is less common for movable property due to its generally lower value.

Conclusions

An equitable mortgage is a type of mortgage where the borrower uses the title deeds of their property as collateral to secure a loan without formally transferring the legal title to the lender.  It is important to understand both the pros and cons of leveraging mortgage equity in order to make an informed decision.

If you are looking for a mortgage loan options, SMFG India Credit offers Loans Against Property up to 70%* of the property’s market value, depending on your eligibility. Contact us or visit your nearest branch to know more.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

FAQs

What is the validity period of an equitable mortgage?

The validity period of an equitable mortgage generally lasts for 12 years from the date it was created. After this timeframe, it might require renewal. However, this period may differ as per the laws of the jurisdiction in which the property is located.

What properties are eligible for equitable mortgages?

Generally, any property that can serve as adequate collateral may be eligible for an equitable mortgage. This includes residential, commercial, and industrial properties. The property must have a clear title and be legally owned by the borrower. It is advisable to consult your lender or a financial advisor to ensure eligibility and understand all requirements.

How is an equitable mortgage formed?

An equitable mortgage is formed when a property owner deposits the title deeds or other ownership documents with the lender as security for a loan. This deposit signifies the owner's intent to create a mortgage without the need for formal registration. The specifics of forming an equitable mortgage can vary, so it is recommended to consult with a legal or financial advisor to understand the process fully.

Read More Read Less

Was this helpful?

Yesyes vote
Nono vote
Sorry about that
How can we improve it:
Submit