If you own a property, you can obtain almost every type of credit against that property. The funding value depends on the property’s value, but you can get easy financing at reasonable interest rates. When a property owner asks for a loan against their asset, they must sign a mortgage deed with the lender, giving them the property’s legal rights in case they fail to repay the loan. They can continue using the property, but if they default on the loan, the lender may ask them to vacate the property, seize it, and sell it to recover the loan amount. Below, you will learn more about mortgage loans, deeds, and types.
What is a Mortgage Loan?
A
mortgage loan involves collateral or security you pledge to a financial institution when borrowing money against it. Since the property has a high value, these loans have large amounts with longer repayment periods. Moreover, a
loan against property interest rate is cheaper than unsecured loans due to the lower risk involved. As a borrower, if you fail to repay the loan, the loan provider has the legal right to seize the property and sell it to recoup the outstanding balance.
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Mortgage deeds are legal documents or instruments that pass over a property’s legal rights to the loan provider, which they can exercise in case of a
loan default. This document gives lenders the property rights to sell the foreclosed property and recoup their defaulted loan amount to protect their interest.
The person who mortgages a property against a loan is termed a mortgagor, whereas the person or party who lends a loan against the property is called a mortgagee. The mortgage deed contains all the loan terms and conditions involved. Registration of the deed is essential to give it legal validity. For registration, both parties must sign the deed, pay stamp duty, and at least two witnesses must attest to it.
How Does a Mortgage Deed Work?
Mortgage deeds allow lenders to hold a borrower's property as collateral until they repay the borrowed amount in full. The deed states that if the mortgagor fails to repay the loan on time, they have the legal right to claim the property's ownership and sell it to recover their financial losses. When entering a loan transaction, both parties agree upon loan size, repayment tenure, EMIs, and interest rate for total repayment. Parties must file the deed in court at a public registry office. Upon successful repayment, the document files as a “satisfaction of a mortgage”, stating that the mortgagee no longer holds interest in the property.
Importance of a Mortgage Deed
After understanding the mortgage deed meaning, you should know that it is necessary when a property owner loans money from a lending institution and transfers their property’s interest to the lender. In other words, when you borrow a loan against your property, the deed secures both parties’ interest and rights over the asset. Here are a few reasons why a deed is important:
- First and foremost, it determines the parties involved in a loan deal, including the borrower and lender, known as the mortgagor and mortgagee, respectively.
- The document enforces the lender's rights in court by ensuring that if the borrower defaults on the loan repayment, they can sell the property to get their payment.
- The deed provides a thorough investigation of the property's title and interest, helping determine the property's rightful owners.
Types of Mortgage Deeds
There are several types of mortgage deed options, which parties must sign depending on the
mortgage loan type they select. Here are a few:
-
Simple Mortgage Deed
The mortgagor pledges an immovable asset to obtain a loan. The mortgagee enjoys the right to sell the property in case of a payment default. -
Usufructuary Mortgage Deed
The lender receives the property’s possession rights. They can earn via profit or rent without any personal liabilities on the borrower. -
English Mortgage Deed
It establishes the borrower’s personal liability and gives the lender the property’s rights if successful payment leads to recovery. -
Mortgage by Conditional Sale Deed
The borrower sells the property, but the sale will turn void if they repay the loan successfully. -
Mortgage by Title Deed Deposit
The borrower submits the property's title deed to the lender to avail of a mortgage loan against it. -
Anomalous Mortgage Deed
A mortgage loan that does not come under any of these types of mortgage deed options is an anomalous deed. -
Commercial Mortgage Deed
Entrepreneurs often use this deed to buy commercial properties like shops, office spaces, etc.
Read More: Common Queries That Revolve Around Loan Against Property Misconceptions Key Elements of a Mortgage Deed
The following are the basic elements present in a simple mortgage deed:
-
Parties
The deed specifies the mortgagor and the mortgagee’s names and ensures they are competent to sign a contract under the Indian Contract Act 1872. -
Property Details
It specifies all material details of the mortgaged property, including its location, value, material facts, specifications, etc. -
Habendum
This clause determines the extent and quality of interest both parties have over the collateral property. -
Repayment Covenant
It specifies the conditions and modes for the loan repayment with its repayment tenure and other terms & conditions. -
Mortgage Clause
It highlights the mortgage type the parties have entered, including its clauses, rights, and duties for both parties. -
Possession
Depending on the mortgage type, this element dictates the possession rights of both parties. For instance, in a simple mortgage deed, the possession remains with the borrower, but in a Usufructuary Mortgage, the mortgagor must deliver the property’s possession to the mortgagee. -
Title Deeds
These clarify what title deeds the mortgagee should get from the mortgagor. -
Insolvency
It specifies the mortgaged property’s treatment if the mortgagor declares insolvent. -
Required Documents
The clause mentioned all the necessary documents for a mortgage deed, including the Aadhaar card, PAN card, passport, bank statements, property documents, etc. -
Redemption Clause
The clause specifies the mortgage tenure, within which the mortgagor must repay the loan and get their property’s right back. It also mentions the method of property redemption after successful repayment.
Understanding the mortgage deed terms and conditions is essential before entering into it. Knowing its important clauses, elements, types, etc., helps you make better decisions while borrowing a loan against your property. Here at Hero FinCorp, you can receive up to 75% of your property's value as a loan and repay it in easy EMIs over a flexible tenure of up to 10 years. The loan against property interest rate is reasonable to make mortgage loans affordable to all property owners.
