Equitable Mortgage vs Registered Mortgage: Key Differences Explained

When considering a Loan Against Property (LAP), understanding the distinctions between an equitable mortgage and a registered mortgage is vital. Both serve as methods to secure loans by leveraging property assets, yet they differ in legal formalities, costs, and implications for both borrowers and lenders.​ 

 What Is an Equitable Mortgage? 

An equitable mortgage, also known as a mortgage by deposit of title deeds, is established when a borrower provides the lender with the property's title documents as a collateral for a loan. This process does not necessitate formal registration with governmental authorities. The lender gains an equitable interest in the property, allowing them to initiate the sale of the property if the borrower defaults on the loan. ​ 

 How Does an Equitable Mortgage Work?  

1. Deposit of Title Deeds: The borrower submits the original property title deeds to the lender.​ 
2. Memorandum of Deposit (MoD): A document is drafted on stamp paper, detailing the terms of the mortgage. ​ 
3. No Formal Registration: The arrangement is not officially recorded with government authorities, streamlining the process.​ 

 Why Equitable Mortgages Matter in Loan Against Property   

Equitable mortgages are often preferred for their simplicity and cost-effectiveness. They involve fewer formalities and lower expenses, making them attractive for borrowers seeking quick loan approvals. However, the absence of formal registration may pose certain legal limitations in enforcing the lender's rights.​ 

 What Is a Registered Mortgage?  

A registered mortgage involves a formal agreement where the mortgage deed is officially recorded with the sub-registrar's office. This registration provides the lender with legal authority over the property, offering legal protection in case of default. ​ 

 How Does a Registered Mortgage Work? 

1. Preparation of Mortgage Deed: A comprehensive document outlining the loan terms is created.​ 
2. Official Registration: The mortgage deed is submitted and recorded at the local sub-registrar's office.​ 
3. Legal Charge Creation: The lender obtains a legally enforceable claim over the property, ensuring their interests are safeguarded.​ 

 Equitable vs. Registered Mortgage: A Comparative Overview 

 Key Factors to Consider When Choosing Between Equitable and Registered Mortgage 

When deciding on the type of mortgage for a Loan Against Property, consider the following: 

• Loan Amount: For substantial loan amounts, lenders may prefer registered mortgages due to the enhanced legal security 
• Processing Speed: If quick loan approval is a priority, an equitable mortgage might be more suitable 
• Cost Sensitivity: Borrowers aiming to minimise upfront costs may lean towards equitable mortgages, which avoid registration fees​ 
• Legal Protection: Those seeking robust legal safeguards may opt for registered mortgages despite the higher costs and longer processing times 

In conclusion, the choice between an equitable mortgage and a registered mortgage for a Loan Against Property hinges on individual preferences, financial considerations, and the desired balance between cost and legal security.