Equitable Mortgage vs Registered Mortgage: Which is Better

Mortgages play a vital role in property financing across India. Among the most common types are equitable and registered mortgages. Understanding these mortgage types helps borrowers make informed decisions based on cost, legal protection and suitability for their property needs.

What is an Equitable Mortgage

An equitable mortgage is a type of loan arrangement where the borrower takes a Loan Against Property. Unlike registered mortgages, this does not involve formal registration with the sub-registrar. It is governed by the Transfer of Property Act, 1882, and is widely used due to its simplicity and lower costs.

Also Read: What is Loan Against Property? Features, Eligibility and more.

Key Characteristics:

• Involves deposit of title deeds without registration
• Governed by Section 58(f) of the Transfer of Property Act, 1882
• Commonly used for residential and commercial loans
• Requires fewer formalities and documentation
• Typically executed in notified towns and cities

Benefits and Limitations

An equitable mortgage offers several benefits for borrowers. It involves lower stamp duty and registration charges since formal registration is not required. The process is faster and requires minimal paperwork, making it suitable for borrowers who need urgent financing. However, there are some limitations. Equitable mortgages provide less legal protection compared to registered mortgages, and not all financial institutions may accept them. Additionally, if the documentation is unclear, there is a risk of disputes regarding ownership or enforcement of the mortgage.

Also Read: Top 10 Benefits of Loan Against Property in India

How Equitable Mortgage Works in India

In India, an equitable mortgage is created when the borrower hands over the original title deeds of the property to the lender with the intent to create security. This transaction does not require registration but must be executed in notified towns as per government guidelines. The lender retains the documents until the loan is repaid. The arrangement is legally binding and enforceable under the Transfer of Property Act, 1882.

What is a Registered Mortgage

In a registered mortgage, the lender has a legal claim on the property until the loan is repaid. This process involves documentation, stamp duty and registration at the sub-registrar office. It offers stronger legal protection and is preferred for high-value loans.

Key Characteristics:

• Requires registration of mortgage deed
• Legally recognised and enforceable
• Involves stamp duty and registration charges
• Suitable for long-term and high-value loans
• Accepted by all banks and financial institutions

Benefits and Limitations

A registered mortgage offers strong legal backing and is fully enforceable, with clear documentation that is recorded publicly, ensuring transparency and reducing the risk of disputes. This makes it the preferred choice for banks and financial institutions for secured lending. However, registered mortgages come with higher costs due to stamp duty and registration fees, involve longer processing times, and require detailed paperwork and legal formalities, making the process more time-consuming compared to other types of mortgages.

How Registered Mortgage Works in India

To create a registered mortgage, the borrower and lender execute a mortgage deed detailing the terms of the loan. This deed is then registered at the sub-registrar office, making it a public record. The process involves payment of stamp duty and registration fees, which vary by state. Once registered, the lender has legal rights over the property in case of default.

Difference Between Equitable Mortgage and Registered Mortgage Explained

Equitable mortgages offer speed and affordability but lack the legal strength of registered mortgages. Registered mortgages, though costlier, provide better protection and are preferred for larger loans. The choice depends on urgency, loan amount and lender requirements.

Factors to Consider While Choosing Between Equitable and Registered Mortgage

Choosing the right mortgage type depends on several factors. Borrowers must assess their financial situation, property type and lender preferences before deciding.

Key considerations include:

• Cost of stamp duty and registration
• Urgency of loan processing
• Legal protection and enforceability
• Acceptance by banks and NBFCs
• Type and value of property
• Duration and purpose of the loan

Legal and Financial Implications in India

Both mortgage types have distinct legal and financial implications. Equitable mortgages are governed by the Transfer of Property Act, 1882, while registered mortgages require compliance with the Indian Registration Act, 1908. Stamp duty for registered mortgages varies by state and can significantly impact overall cost. Registered mortgages also offer better protection in case of default or legal disputes.

Recent updates in housing finance regulations encourage transparency and formal documentation, making registered mortgages more favourable for long-term property investments. Borrowers must consult legal experts to understand the implications fully.

Apply now for a Loan Against Property.

FAQs

Q.1. Can an equitable mortgage be converted into a registered mortgage?

A. Yes, an equitable mortgage can be converted into a registered mortgage by executing a formal mortgage deed and registering it at the sub-registrar office. This process involves payment of applicable stamp duty and registration fees.

Q.2. What are the tax benefits, if any, on each mortgage type?

A. Tax benefits are generally linked to the purpose of the loan rather than the mortgage type. Home Loans backed by either mortgage may qualify for deductions under Section 24 and Section 80C of the Income Tax Act.

Q.3. How long does it take to register a mortgage in India?

A. Registering a mortgage typically takes between 7 to 15 working days, depending on the state, availability of documents, and sub-registrar office schedules.

Q.4. Is a registered mortgage mandatory for a home loan in India?

A. While not mandatory, most banks and financial institutions prefer registered mortgages for home loans due to their legal enforceability and formal documentation.

Q.5. What happens if I default on an equitable mortgage?

A. In case of default, the lender may initiate legal proceedings to recover dues. However, enforcement may be more complex compared to registered mortgages due to limited documentation.

Disclaimer:

The contents of this article are for information purposes only and are not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise, based on the contents and information mentioned. For more information , please visit www.godrejcapital.com