Mortgage vs Hypothecation

Differences Between Mortgage vs Hypothecation

There is a slight difference between mortgage and hypothecation. On the surface, it may seem that both are similar but they are different.

Both of these have something to do with the secured loan. And for both of these, the borrower needs to put in something (as hypothecation or mortgage) to secure the deal for the lenders.

• A mortgage is a charge against immovable properties like land, building, warehouse etc. A mortgage has to do with something that is attached to the earth in some way or other.
• Hypothecation is a charge against movable properties cars, accounts receivables, stocks etc.

In this article, we will look at different aspects of mortgage and hypothecation. And we will also look at a comparative analysis of mortgage vs hypothecation.

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Mortgage vs Hypothecation Infographics

There are many differences between mortgage vs hypothecation. Let’s have a look at them one by one –

Key differences between Mortgage vs Hypothecation

There are many differences between mortgage and hypothecation, but here are the key differences between them –

• Mortgage is taken for a huge amount. Hypothecation is done for a small amount.
• Mortgage is done for immovable properties like land, building, warehouse etc. Hypothecation, on the other hand, is done for movable properties like car, vehicles, stocks etc.
• Under mortgage, the interest of the asset would be transferred to the lender first and then once the amount is paid off, it is re-transferred. But if the borrower isn’t able to pay the amount, then the immovable property is sold off. Under hypothecation, the interest of the asset isn’t transferred. Rather when the borrower isn’t able to pay the amount due, then the movable property is possessed and then sold off to get back the proceeds.
• For mortgage, mortgage deed is required as a legal document. For hypothecation, hypothecation deed is required as a legal document.
• The tenure of a mortgage is more since the amount of loan is huge. But in the case of hypothecation, the tenure is lesser since the amount of loan is lower.

Mortgage vs Hypothecation (Comparison Table)

Basis for Comparison between Mortgage and Hypothecation	Mortgage	Hypothecation
1.    Meaning	Mortgage is a charge against immovable properties.	Hypothecation is a charge against movable properties.
2.    Ownership	Ownership usually remains with the borrower, but not always.	Ownership usually remains with the borrower.
3.    Applicable for	Immovable properties.	Movable properties.
4.    The amount of loan	In the case of a mortgage, the amount of loan is comparatively very high.	In the case of hypothecation, the amount of loan is comparatively lower.
5.    Tenure	Since the loan amount is higher, the tenure is also higher.	Since the loan amount is lower, the tenure is also lower.
6.    Legal document required	Mortgage deed.	Agreement of hypothecation.
7.    Why useful?	By using the immovable property to the lender as collateral, the borrower can borrow a lot of money.	By using an asset (movable property) as collateral, the borrower takes loan from bank.
8.    Transfer of title	Transfer of title is often passed on to the lender.	Transfer of title is never passed on to the lender.
9.    Properties as collaterals	Land, buildings etc.	Vehicles, accounts receivable etc.

Conclusion

After the discussion and comparative analysis between the mortgage and the hypothecation, it is not wise to say that one is better than another; because both of these serve different purposes. And depending on the purpose you have, you need to take the loan. However, in terms of convenience and flexibility, hypothecation is much better; because there’s less risk and you will also pay lower interests.

In the case of a mortgage, you need to pay more because the amount is huge and you can lose your property any time if you default. As an individual, it’s important that you understand both of them well and then act on your knowledge. The decision to take the mortgage or the hypothecation would be dependent upon what purpose you have for taking the loan.

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This has a been a guide to the top differences between Mortgage vs Hypothecation. Here we also discuss the Mortgage and Hypothecation differences with examples, infographics, and comparison table. You may also have a look at the following articles for gaining further knowledge in Accounting –

• Accounts Receivable vs Accounts Payable
• Interest Rate vs Mortgage APR 
• Secured Loan
• Secured vs Unsecured Loan
• Stocks vs Bonds – Similarities
• Unsecured Loans