Mortgage Deeds and Loan Against Property – What You Should Know

When you avail of a Loan Against Property, one of the key documents involved in the process is the mortgage deed. This legal document records that your property has been offered as collateral for the loan and outlines the rights and obligations of both the borrower and the lender. 

Understanding what a mortgage deed is and why it is required can help you navigate the loan process with greater confidence. Here's everything you need to know. 

What is a Mortgage Deed? 

A mortgage deed is a legal agreement between the borrower and the lender that records the property being offered as collateral for a Loan Against Property. While ownership and possession of the property remain with the borrower, the lender retains certain legal rights over it until the loan has been repaid in full. 

Why Does a Mortgage Deed Matter?

Mortgage deeds are important because: 

• They define the agreement between borrower and lender. 
• They provide legal clarity about the rights. 
• They provide details about the property being pledged.  
• They outline details about the loan, including the principal amount, the rate of interest, and the repayment schedule, along with prepayment terms. 
• They specify the obligations of both parties. 

Types of Mortgage Deeds 

Different types of mortgage deeds determine how the property is used as collateral and the rights of the borrower and lender. 

Registered Mortgage 

In a registered mortgage, the mortgage deed is formally registered with the Sub-Registrar's Office, making it a part of the public record. Registration establishes the lender's legal interest in the property and helps prevent unauthorised sale or transfer without addressing the mortgage. This type of mortgage is commonly used for certain high-value or complex lending arrangements. 

Equitable Mortgage 

Also known as a mortgage by deposit of title deeds, an equitable mortgage is created by depositing the original property documents with the lender. In locations where this form of mortgage is legally recognised, registration of the mortgage deed may not be required, making the process quicker and more cost-effective. The borrower continues to retain possession and use of the property during the loan tenure. 

Simple Mortgage 

Under a simple mortgage, the borrower mortgages the property without transferring its possession. The borrower continues to own and use the property, while the lender has the legal right to recover the outstanding dues by enforcing the mortgage in accordance with applicable laws if the borrower defaults on repayment. 

Mortgage by Conditional Sale 

In a mortgage by conditional sale, the property is transferred to the lender subject to specific conditions. The transfer becomes absolute if the borrower fails to repay the loan as agreed. If the loan is repaid, the property reverts to the borrower in accordance with the terms of the mortgage. 

English Mortgage 

An English mortgage involves the transfer of ownership of the property to the lender, with a commitment from the lender to re-transfer ownership once the loan has been repaid in full. Although legal ownership is transferred during the loan tenure, the borrower has the contractual right to regain full ownership after fulfilling the repayment obligations. 

How to Register a Mortgage Deed 

Registration is required only for mortgage deeds that are legally required to be registered. For example, an equitable mortgage created by depositing title deeds generally does not require registration, subject to the applicable state laws. 

Where registration is required, the process typically involves the following steps: 

1. Prepare the Mortgage Deed: Draft the mortgage deed with details of the borrower, lender, property, loan amount, and the terms of the mortgage. 
2. Pay the Applicable Stamp Duty: Pay the stamp duty and registration charges as prescribed by the respective state government. The applicable charges vary depending on the state and the type of mortgage. 
3. Visit the Sub-Registrar's Office: The parties to the mortgage, or their authorised representatives, must visit the jurisdictional Sub-Registrar's Office with the required documents. 
4. Submit the Required Documents: Submit the signed mortgage deed along with identity proof, address proof, property documents, photographs, and any other documents required by the registration authority. 
5. Verification and Registration: The registering authority verifies the documents and completes the registration process. Once registered, the mortgage deed becomes part of the official public record. 

Registered Mortgage vs. Equitable Mortgage 

What Does a Typical Mortgage Deed Include?

Even if you’re doing a title deed deposit, it helps to know what a full mortgage deed typically consists of. 

It usually covers: 

• Your name and the lender’s 
• A clear description of the property 
• The loan amount and interest rate 
• How you’ll repay the loan (monthly EMIs or otherwise) 
• What happens if there’s a delay or default 
• Rights and duties of both parties 
• The terms and conditions of the loan 

If you're planning to use your property to raise funds, don’t overlook the mortgage deed. Factor in the stamp duty, and understand whether mortgage deed registration is required for your state.