Difference Between Equitable Mortgage and Registered Mortgage

Indian property holders typically find themselves faced with two major mortgage types: equitable mortgage and registered mortgage. Making the right choice between the two is crucial for getting legal documentation, ownership and recognition for your property. Hence, it's important to understand what these mortgages are and what their differences look like. Our blog explores the difference between equitable and registered mortgages, going into the two concepts in detail. Keep reading to know more.

What is an Equitable Mortgage?

An equitable mortgage is a type of loan agreement where the borrower uses their property as security to borrow money. But instead of signing a formal mortgage deed, they just hand over the title deeds (property documents) to the lender. The legal title of the property stays with the borrower, but the lender has a precedence or legal claim in case the borrower doesn’t repay the loan. Using the borrower's property without having to draft and sign a formal deed makes it a quicker and simpler way to get a loan.

Equitable mortgages are legally valid in towns and cities notified by their respective state government under the Transfer of Property Act. Due to the limited paperwork and faster processing, they are popular for Home Loans, Loan Against Property, medium-sized mortgage loans, and loans against vacant land in urban areas.

Over recent years, certain states have amended the Registration Act of 1908 to make it compulsory to intimate the Registrar of an equitable mortgage. This helps to bring the mortgage on record while keeping the process straightforward.

How Does an Equitable Mortgage Work?

The process begins when both the borrower and the lender agree on the terms. Then, instead of signing a formal mortgage deed, the borrower transfers the original title deeds (also called property documents) to the lender. The lender will hold these documents as security until the borrower fully repays the loan, at which point they release the mortgage.

In most cases, a written agreement called the Memorandum of Deposit of Title Deeds (MODT) is created. This document includes the loan amount, property details, and the repayment schedule. It helps establish an equitable interest, giving the lender limited legal protection if the borrower defaults on the loan.

Also Read: Top 8 Useful Tips to Get Your First Personal Loan

Understanding Registered Mortgages

A registered mortgage, also called a legal mortgage, is more structured. It requires the borrower to sign a formal mortgage deed and register it with the land registry through the sub-registrar, as defined by the Transfer of Property Act. The mortgage deed is both stamped and registered, with overall registration charges averaging around 5% of the entire loan amount, plus applicable registration fees.

This makes the transfer of legal title officially recorded and legally enforceable, offering stronger legal rights to the lender in case the borrower fails to repay. This type of formal documentation is generally preferred for higher-risk transactions, such as commercial real estate, vacant land, or larger loans. Due to its wider legal protection, it is one of the more widely accepted mortgage types in India for those seeking informed financial decisions.

Equitable Mortgage vs Registered Mortgages: Key Differences

Both mortgages are governed by the Transfer of Property Act, a key government authority framework for real estate transactions. But each has significant distinctions in terms of benefits, conditions, and use cases.

Also Read: How Business Loans Take Your Business Higher?

How to Choose Between Equitable and Registered Mortgages

If you're in urgent need of a small loan amount (typically up to ₹20–25 lakhs) and speed is of the essence, opt for an equitable mortgage for its efficiency. Note that you'll receive lower legal protection, so having a good relationship with the lender is beneficial. Also, keep in mind that equitable mortgages are only valid in towns and cities officially notified by the State government authority.

Larger loan amounts, commercial property, or high-value transactions are better off with registered mortgages. The longer processing time will have to be accounted for; it is unavoidable if you want clear legal protection and formal documentation.

Also Read: Business Loan vs. Business Line of Credit: Which One Should You Choose?  

To Conclude

Choosing between an equitable and registered mortgage is key to meeting your financing needs. One offers speed and lower costs, while the other ensures stronger legal protection and formal records. Whether it's vacant land or your home, understanding the mortgage types, legal rights, and documentation helps you avoid risks. However, if you are looking for financial support to finance a loan against your property, apply for Poonawalla Fincorp's loan for a high loan amount, competitive interest rate, no hidden charges and more.

Frequently Asked Questions

What is meant by an equitable mortgage?

An equitable mortgage is a legal arrangement where the borrower offers their property as collateral by handing over the title deeds to the lender without signing a formal mortgage deed. It creates an equitable interest in favour of the lender and is common in notified areas, requiring minimal legal documentation and stamp duty.

Why is understanding equitable mortgages important?

Understanding equitable mortgages is crucial because it safeguards both borrowers and lenders in property transactions by clearly defining the legal obligations and rights of both parties. It also helps individuals make informed financial decisions based on the type of property and the nature of the legal arrangement involved.

Why are equitable mortgages commonly used in India?

Equitable mortgages are commonly used in India due to their simplicity and cost-effectiveness, as they save on registration charges and stamp duties. They are especially preferred for medium-value loans where quick processing and minimal legal documentation are needed.

Why do many borrowers prefer equitable mortgages?

Equitable mortgages allow property owners to access funds without relinquishing ownership, making them a preferred choice in various real estate transactions. This ensures continued control over the mortgaged property while still fulfilling immediate financial needs.

What happens to property ownership in a registered mortgage?

In a registered mortgage, when the mortgage deed is created, the legal registration transfers ownership to the lender. The borrower retains beneficial ownership and possession rights. If a default occurs, the lender may take possession, enforcing their legal title. The formal mortgage deed and public record offer enhanced legal protection to the lender in such cases.

How are Home Loans linked to mortgage types?

Home Loans are typically secured by either an equitable or a registered mortgage. In most cases, lenders use equitable mortgages for quicker processing, especially in notified urban areas. However, for higher loan amounts or added legal protection, banks may prefer registered mortgages to secure the property more formally.

Why are registered mortgages considered the standard in real estate transactions?

Registered mortgages are the standard in property transactions because they provide strong legal clarity and security for both borrowers and lenders. The involvement of a formal mortgage deed and registration with a government authority ensures transparency and enforceability.

What key terms are included in a registered mortgage agreement?

A registered mortgage typically includes terms such as interest rate, tenure, repayment schedule, and the loan amount as part of the formal agreement. These details are recorded in the mortgage deed to ensure legal enforceability and transparency for both parties involved.

Do equitable mortgages require formal registration?

Equitable mortgages often rely on informal agreements and do not require formal registration. Instead, they are created by depositing title deeds with the lender, offering a simpler and more cost-effective legal arrangement.

What are the different types of mortgages in India?

In India, common mortgage types include equitable mortgage and registered mortgage, which are widely used for Home Loans and Business Loans . Others include simple mortgage (no property ownership transfer), usufructuary mortgage (lender gets property as collateral and income), and English mortgage (lender holds legal title until repayment).