Difference Between Pledge vs. Hypothecation vs. Mortgage

When applying for a Home Loan, you may encounter the terms pledge, hypothecation, and mortgage. These are all forms of securing a loan by offering an asset as collateral, but they differ in terms of the type of asset involved and the rights transferred to the lender. Understanding the differences between pledge, hypothecation, and mortgage can help you identify the correct type of secured borrowing opportunities and provide information about their rights and obligations. 

What is Pledge?

Pledge means transferring the physical possession of a movable property to the lender for a loan. The ownership remains with the borrower, but the lender will have the physical property until the debt is repaid.  

What is Hypothecation?

Hypothecation means using the movable property as collateral while retaining physical possession of the asset. With respect to hypothecation, the borrower continues to use the assets while the lender has a legal right to possession if the borrower defaults.  

What is a Mortgage?

Mortgages concern immovable assets such as land or a house. A mortgage signifies a legal arrangement of rights where a borrower uses an immovable asset to secure a loan. Ownership of the property remains with the borrower, but the lender has legal rights over it until the loan is repaid.

Pledge, hypothecation, and mortgage are all methods of securing a loan, but each applies to different types of assets and comes with distinct legal implications. A pledge involves movable property physically handed over to the lender, hypothecation allows continued use of movable assets while creating a charge in favour of the lender, and a mortgage applies to immovable property where legal rights rest with the lender until repayment.