The difference between a registered mortgage and an equitable

mortgage

Equitable Mortgage:

An equitable mortgage is creating a charge on the property by handing over the title
deeds of the property by its owner to the lender and orally confirming of handing over
the title needs for the intent to create a charge on the property for the amount borrowed

Equitable mortgage will not incur any stamp duty. Registered mortgage will entail stamp
duty based on the amount lent or amount for which charge has been created. Sometimes,
amount lent may be more but mortgage will be registered for a nominal amount to avoid
stamp duty.

 In an equitable mortgage (EM), the owner has to transfer his title deed to the lender,
creating a charge on the property. The owner verbally confirms the intent of creating a
charge on the property. No legal procedure is involved in an EM, but it is considered in
the interest of justice (under equity)

When the word “mortgage” is used in the context of a home loan, we know that

the property has to be mortgaged to the lender until the loan is fully repaid. Mortgage

refers to the transfer of interest in a property in order to borrow money.

As a home loan buyer, it is important to recognize the need for 'Registered' and

'Equitable' mortgages, and the stamp duty charges involved in the legal process. Such

charges do have an impact on your cost of credit. Even when the bank offers a

substantially low lending rate and waives the loan-processing fee, such charges can

weaken the benefits.

Understanding equitable mortgage

In an equitable mortgage, the owner has to transfer his title deed to the lender, thereby

creating a charge on the property. The owner also orally confirms the intent of creating a

charge on the property. An equitable mortgage is also known as an implied or

constructive mortgage. No legal procedure is involved in an equitable mortgage, but it is

considered mortgage in the interest of justice (under equity). The borrower obtains

money from the bank/lender with an agreement that his property, on which the

equitable mortgage is created, will act as security for the loan.

The borrower has to submit his title deed to the lender as security for the money

borrowed.

No formal, legal document is executed or registered in the records of the registrar, but it

can be created at notified places. Stamp duty and charges are comparatively low, relative

to a registered mortgage.

the lender, thereby creating a charge on the property. The owner also orally confirms the
intent of creating a charge on the property. An equitable mortgage is also known as
an implied or constructive mortgage. No legal procedure is involved in an equitable
mortgage, but it is considered mortgage in the interest of justice (under equity). The
borrower obtains money from the bank/lender with an agreement that his property, on
which the equitable mortgage is created, will act as security for the loan.

The borrower has to submit his title deed to the lender as security for the money
borrowed.

Registered Mortgage:

A registered mortgage is registering the document creating the charge on the property by
the mortgagor in factor of lender, with sub-registrar.

Nowadays, registered mortgages are preferred even by banks as it is more fool proof and
indicates the encumbrances in the encumbrance certificate issued by sub-registrar.

In a Registered Mortgage, the borrower has to create a charge on the property with the
Sub-Registrar through a formal, written process as a proof of transfer of interest to the
lender as security for the loan. It meets all the necessary legal requirements to create
mortgage or a charge. If the borrower repays the loan according to the terms &
conditions of the home loan agreement, the title of the property is given back to the
borrower. The rights of the lender (as created during the legal process) will stand null
and void on the property. However, if the borrower fails to fully repay the loan (i.e.
interest plus principal), the lender will have the right to take possession of the property.

In a registered mortgage, the borrower has to create a charge on the property with the
sub-registrar through a formal, written process, as a proof of transfer of interest to the
lender as security for the loan. Registered mortgage is also known as 'Deed of Trust'.
A registered mortgage meets all the necessary legal requirements to create a mortgage or
a charge. If the borrower repays the loan according to the terms and conditions of the
home loan agreement, the title of the property is given back to the borrower. The rights
of the lender (as created during the legal process) will stand null and void on the
property. However, if the borrower fails to fully repay the loan (i.e. interest plus the
principal component), the lender will have the right to take possession of the property.

Upsides of equitable mortgage

An equitable mortgage is considered easy and economical. The stamp duty involved in
an equitable mortgage is much lower than what is paid in registered mortgage. In many
states, stamp duty and registration charges in equitable mortgages are as low as 0.1 per
cent of the loan amount. In other mortgages, stamp duty and registration charges have to
be paid twice, at times. This means that stamp duty and registration charges are paid
when the mortgage/charge is created, and again when the mortgage is closed, i.e. when
the loan amount is fully repaid.

The borrower and the bank representative do not have to visit the sub-registrar's office
and undergo the process of registration/ release of the mortgage.

The original title deed is returned to you without any formal process when you
completely repay your debt to the bank.

Why banks prefer registered mortgage

Despite the benefits that equitable mortgage has to offer both parties (i.e. borrower and
the lender), banks prefer registered mortgage because equitable mortgages lack records
of the loan on the property in the sub-registrar's office. In an equitable mortgage, only
the lender and the borrower are aware of the mortgage/charge created on the
property/land. This leaves the possibility of the property being sold to a third party
without fully repaying the loan. The new buyer/ party might not be aware of the
mortgage (because there are no records, and the mortgage is created by a mere exchange
of words).

So, banking institutions consider equitable mortgage as misleading. Many instances of

fraud were reported in the past by lenders because the same property was used to get
multiple loans as public records were lacking.