Chattel Mortgage

Chattel Mortgage Meaning

A chattel mortgage is a type of loans given to individuals as well as the company with the movable property as the collateral against the loan. Examples of such loans include cars, aeroplanes, boats, farm equipment, and even mobile homes on leased land.

How does Chattel Mortgage Work?

The chattel mortgage loans are very much similar to commercial loans. The borrower can choose the term of the payments, and the frequency of the payment. The only difference is that the chattel mortgage is secured by the movable property.

One more feature is that the borrower can choose to go for residual or balloon paymentBalloon PaymentWhen part repayment of principal loan such as mortgage loan, commercial loan, etc. is agreed to be made at the end of the loan period or at the maturity where the total outflow is higher than the approx. amount payable on the monthly basis since it does not fully amortize over the term of the loan due to its large amount then it is known as balloon more. Residual payment or balloon payment is a lump-sum amount set aside to be dealt with at the end of the loan term.

The borrowers can choose from the following options to settle the residual payment:

Chattel Mortgage

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An individual is looking for financing equipment for her business. She goes to the XYZ bank, and the bank offers her the chattel mortgage. The following information was there relating to the loan.

The individual borrower agreed to the terms and went ahead with the mortgage.

Purpose of Chattel Mortgage


There are primarily of two types –

  • Chattel Mortgage for Financing Mobile Homes: This type of mortgage is extended to the borrowers on the mobile homes situated on leased lands. The borrowers purchasing mobile homes cannot go for a traditional mortgage because land does not belong to the borrower. Since a mobile home is considered movable property, thus, it comes under the purview of it.
  • Chattel Mortgage for Financing a New Equipment: This type of financing is used to purchase new equipment that allows the borrower to keep using the equipment or machinery while providing it as collateral. In the event, buyer or borrower defaults, the lender can sell the machinery to recover the losses.

Chattel Mortgage with or without Dispossession

  • A chattel mortgage with dispossession: Here, the property needs to be transferred to the creditor or lender before the start of the loan. The lenders prefer this. Fees associated with this type of mortgage is quite high.
  • A chattel mortgage without dispossession:  In this, the borrowers do not need to transfer the collateral property to the lender before the start of the loan. In this type of mortgage, the amount covered by the guarantee or security is specifically mentioned. The amount covered by the guarantee is usually lower than the total value of the movable property put as security but higher than the loan. The amount exceeding the loan part is to cover the fees and interest over the loan.

Benefits of Chattel Mortgages

Recommended Articles

This has been a guide to Chattel Mortgage and its Meaning. Here we discuss how does it work along with its example, purpose, types and benefits. You may learn more about financing from the following articles –