Difference Between Hypothecation And Mortgage

Understanding what is the difference between mortgage and hypothecation is simple. In a mortgage loan, immovable assets like a house or land are used as security, and the lender can take possession and sell the asset if the borrower defaults. But in a hypothecation loan, the borrower keeps possession of movable assets used as security, and the lender must take possession of the asset to recover the loan if the borrower defaults.

What are the Differences Between Mortgage vs Hypothecation?

So there is not a single hypothecation and mortgage difference but many. I hope you have understood their meanings well now.

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Most people mistake hypothecation for a mortgage, but there is a difference between mortgage and hypothecation in the basis on which they are constructed. A charge may be made against the either mobile or immovable property, and when one is, the latter is referred to as a mortgage. A charge made against movable property is referred to as hypothecation.

After going through the above-mentioned answer, I’d say that I completely agree with Rashmi’s answer where she provided detailed points about the mortgage vs hypothecation debate. However, I would like to add one more point about the hypothecation and mortgage difference. 

The term mortgage is defined under Section 58 (a), Transfer of Property Act, 1882. Conversely, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, SARFAESI Act defines hypothecation.

Despite the mortgage and hypothecation differences, the two types of charges have certain things in common, including the fact that they both serve as collateral for loans and that the borrower retains custody of the asset while the lender has first dibs on it up until the debt is paid. Additionally, if the borrower defaults in either situation, the lender can recoup the money by selling the asset.

In terms of safety, the mortgage is superior to hypothecation because it is made over property, a building, a house, etc., whose value increases over time, as opposed to a car, stock, etc., which does not increase in value over time in the case of hypothecation.

I hope this suffices the query about the difference between mortgage and hypothecation. I hope this helps:)

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Availing a loan against a property or asset seems a simple thing but actually, there are several terms related to it that are quite complex to understand. I just availed of a loan to buy a property and got acquainted with two terms- hypothecation and mortgage. People want to know what is the difference between hypothecation and mortgage but before that, do know what the terms mean.

In hypothecation, the asset is pledged as collateral for a loan but the transfer of the property’s title to the lender does not take place.

A mortgage is an agreement between two parties to buy or refinance a house without having all the cash upfront

Some basic differences between hypothecation and mortgage are as follows:

• A mortgage is taken for a huge amount whereas hypothecation is done for a small amount

• A mortgage is done for immovable assets like houses, lands, etc whereas hypothecation is done for moveable assets like cars, stocks, and more

• A mortgage deed is required for a mortgage and hypothecation, the hypothecation deed is required

• The tenure of a mortgage is more as the loan is more but for hypothecation, the tenure is less as the loan amount is also less.

• The owner of the asset does not give up his rights, title, or income provided by the asset but the lender can seize the asset if the terms of the agreement fail to get fulfilled in a mortgage, the right is transferred until the demands are met.

These are the basic hypothecation vs mortgage aspects.

The interest rate for a home loan is lower than a mortgage loan and thus home loan is more affordable than a mortgage. 

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