Types OF Mortgage Under the Transfer of Property Act, 1882
Many in India avail of mortgage loans to buy properties. A mortgage loan involves two parties – a mortgagor and a mortgagee. Money is lent by the mortgagee for a specific period. On this money, a certain percentage of interest is also charged.
A mortgagor avails of funds to purchase a property. The fund is provided in exchange of the title of the property. After the complete repayment of the loan by the mortgagor, the transfer of property title becomes void. Transfer of Property Act, 1882, in India deals with the idea of mortgage. According to sec 58 of the act, 6 different mortgage loan types can be explained as simple mortgages, Mortgage by Conditional Sale, English Mortgage, Anomalous Mortgage, Anomalous Mortgage. These six types of mortgages are explained below.
Six Type of Mortgage In India
In the case of a simple mortgage, the mortgagor gives the lender the right to sell the property to if the mortgagor is unable to repay the loan on time. The right to auction the property to recover the loan amount is subject to the mortgagor defaulting on the loan repayment. The possession of the property, Usufructuary Mortgage, Mortgage by Deposit of Title Deeds, however, is not transferred to the lender and remains with the borrower.
Mortgage by Conditional Sale
In this type of mortgage, there is a condition involved to the property sale. The property is sold by the mortgagor to the mortgagee for the sum of the loan amount. However, if the loan amount is paid, then it becomes binding on the mortgagee to re-transfer the property to the mortgagor. For the sale to become absolute, the loan should not be paid.
This is an absolute type of property transfer. The mortgagor transfers the property to mortgagee stating that the property should be retransferred to the mortgagor if the loan is repaid on a certain date. Here, a specified date and the obligation to repay the loan are involved. Till the time the loan is not completely paid, the property transfer is considered absolute. However, this absolute transfer is subject to the provision in the agreement that the property shall be re-transferred to the mortgagor after the repayment of the loan, even if before the due date. If the loan repayment does not happen by the specified date, mortgagee has the right to sell the property off for recovery.
Instead of choosing to be liable to repay the loan, the mortgagor transfers the possession of the property to the mortgagee. This possession allows the mortgagee to receive benefits out of the property, such as rent and profit. The mortgagee collects profits from the property in lieu of the principal amount and the interest on this amount. This possession lasts till the time the loan repayment is not done by the borrower. However, during this period, the mortgagee cannot sell off the property. The mortgagor keeps the right to take back the property after paying off the debt.
Mortgage by Deposit of Title Deeds
Also known as equitable mortgage, this is an easy and less time-consuming mortgage. As the name suggests, the submission of title deed is necessary for a mortgage to take place. Instead of executing the title deed or formally registering the deed, the mortgagor just submits the document to the mortgagee. The submitted document is considered security for the loan. Legally, this process is valid and the party who possesses the documents is considered the owner of the property. The borrower can reclaim the documents after the repayment of the loan.
An agreement between the mortgagor and the mortgagee that does not fall under any of the mortgage types described above is considered anomalous mortgage. If the two parties come up with an agreement that is not as per the five other mortgage types, it would be anomalous mortgage as per the act.
Knowing about different types of mortgages and the legality involved can help those who have availed of a mortgage loan. Inability to pay off the loan leads to lenders putting pressure on the borrower. In that scenario, the information provided in this article can prove to be helpful. Borrowers should also know that securing the lowest mortgage loan interest rate reduces the burden of mortgage loan EMI. Thus, chances of default on the loan also go down. At the time of finalising and availing of the loan, a lower mortgage loan interest rate can be secured through thorough planning and research.
An important part of the mortgage loan is also the loan closure procedure. Borrowers should ask for no dues certificate. By obtaining this certificate, you can avoid problems in the future. The issued certificate proves that the loan has been repaid by the borrower. Thus, the lender no longer has any right over the property.