Mortgage and Hypothecation Differences
Mortgage is one of the ways to raise cash utilizing the assets by creating a charge against immovable property where the amounts involved is generally very high and the transfer of title is often passed whereas Hypothecation is also a way of raising cash by creating a charge against movable assets but the title of ownership is never transferred and generally involves much less amount than mortgage.
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 another.
- Hypothecation is a charge against movable property cars, accounts receivables, stocks, etc.
Mortgage vs Hypothecation Infographics
Key Differences Between Mortgage and Hypothecation
- A mortgage is taken for a huge amount. Hypothecation is done for a small amount.
- A mortgage is done for immovable properties like land, building, warehouse, etc. Hypothecation, on the other hand, is done for movable properties like cars, vehicles, stocks, etc.
- Under the 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, the 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.
Comparative Table
| Basis for Comparison | Mortgage | Hypothecation |
| 1. Meaning | A 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. 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 a loan from the bank. |
| 8. Transfer of title | The transfer of title is often passed on to the lender. | The 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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