The process of purchasing a new home can be complex. The reason is that there are various processes and aspects related to property registration and fund arrangements. When entering a loan agreement, people generally consider aspects like the interest rate, repayment terms and tenure, and hidden charges. However, there is another aspect that must be taken into consideration – whether it is an equitable mortgage or registered. These mortgage types, to some extent, determine the lender's rights and the cost of borrowing. Let's discuss what they mean and how they differ.
Key Takeaway
Equitable mortgage and registered mortgage are two types of mortgages that have different implications for borrowers and lenders. Understanding the difference between these two types can help individuals make informed decisions when purchasing a new home.
What is a Registered Mortgage?
A registered mortgage is a type of loan agreement where the lender registers the property as security for the loan with the relevant government authority. This means that in case the borrower defaults on their loan payments, the lender has legal rights to sell or auction off the property to recover their money.
What is an Equitable Mortgage?
On the other hand, an equitable mortgage is a loan agreement where the lender holds on to the property's ownership papers as security for the loan. This means that in case of default, the lender has to approach a court to obtain the right to sell or auction off the property. It is not automatically granted like in a registered mortgage.
What are the Differences Between the Two?
One of the main differences between registered and equitable mortgages is the legal protection they offer to lenders. In a registered mortgage, the lender has clear legal rights to take possession of and sell the property in case of default. However, in an equitable mortgage, the lender must go through a legal process to obtain this right.
Which One Is More Expensive?
In terms of cost, a registered mortgage is generally more expensive as it involves registration fees and other government charges. This additional cost is passed on to the borrower by the lender, making the loan more expensive in comparison to an equitable mortgage. However, registered mortgages offer more security and legal protection to lenders, making it a preferred option for many.
Which One Entails More Risk?
From a borrower's perspective, an equitable mortgage may seem like the less risky option as it involves less upfront costs. However, in case of default, the borrower risks losing their property if the lender is able to obtain possession and sell it through legal means. On the other hand, a registered mortgage offers more protection for borrowers as they can challenge any discrepancies or illegal actions taken by the lender through the registered documentation.
Is an Equitable Mortgage Required To Be Registered?
While it is not a legal requirement for an equitable mortgage to be registered, it is recommended for the lender's protection in case of default. It also provides proof of ownership and prevents any disputes over the property. However, some jurisdictions may require equitable mortgages to be registered to be legal and valid.
Which Option Do Banks Prefer?
Banks and other financial institutions typically prefer registered mortgages as they offer more legal protection and are seen as less risky. The registration process also helps to establish clear ownership of the property, making it easier for the lender to sell or auction off in case of default.
Final Thoughts
In conclusion, both registered and equitable mortgages have their own advantages and disadvantages for both lenders and borrowers. It is important to carefully consider the terms and requirements of each type before entering into a loan agreement. Seeking professional advice from a lawyer or financial advisor can also help in making an informed decision. So, whether you are looking to purchase a new home or secure a loan, understanding the differences between these mortgage types is crucial in making a well-informed decision that suits your financial needs and goals. So, do your research and make sure to weigh all options before deciding on the type of mortgage that works best for you. Remember, it's not just about getting a good deal; it's also about protecting your interests in the long run.
