Difference Between Mortgage and Hypothecation

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.

Mortgage-and-Hypothecation

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Mortgage vs Hypothecation Infographics

Mortgage-vs-Hypothecation

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Key Differences Between Mortgage and Hypothecation

Comparative Table

Basis for ComparisonMortgageHypothecation
1. MeaningA mortgage is a charge against immovable properties.Hypothecation is a charge against movable properties.
2. OwnershipOwnership usually remains with the borrower, but not always.Ownership usually remains with the borrower.
3. Applicable for Immovable properties.Movable properties.
4. Amount of loanIn 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 requiredMortgage deed.Agreement of hypothecationAgreement Of HypothecationHypothecation is a process where a lender receives an asset offered to him/her as collateral security. It is done mainly in assets that are movable in nature to establish the charge against collateral security for a particular loan.read more.
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 titleThe transfer of title is often passed on to the lender.The transfer of title is never passed on to the lender.
9. Properties as collateralsLand, 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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