Equitable vs. Registered Mortgage: Understanding How Banks Secure Your Property

When applying for a loan against property, borrowers often focus on interest rates, eligibility, and repayment terms. However, one crucial aspect that deserves equal attention is how banks legally secure the property offered as collateral. This is where Equitable Mortgage and Registered Mortgage come into play.

Understanding the difference between these mortgage structures can help borrowers make informed financial decisions and avoid surprises during the loan process.

What Is a Loan Against Property?

A loan against property (LAP) is a secured loan where borrowers pledge their residential, commercial, or industrial property as collateral to access funds. Because the loan is secured, lenders typically offer lower interest rates compared to unsecured credit options.

However, to safeguard their financial risk, banks and NBFCs create a legal charge on the property. This charge is established through either an equitable mortgage or a registered mortgage.

What Is an Equitable Mortgage?

An equitable mortgage, also known as a mortgage by deposit of title deeds, is created when the borrower deposits the original property documents with the lender as security for the loan.

Key Features of an Equitable Mortgage:

• No formal registration of the mortgage deed is required (in most states).
• The borrower deposits original title deeds with the bank.
• A Memorandum of Entry (MOE) may be executed.
• Generally involves lower stamp duty compared to a registered mortgage.

This type of mortgage is commonly used for a loan against property due to its relatively simpler process and lower upfront costs.

Advantages:

• Lower stamp duty and registration charges
• Faster execution process
• Widely accepted by banks and NBFCs

Considerations:

Although simpler, the lender still has full legal rights to enforce the security in case of default under applicable laws.

What Is a Registered Mortgage?

A registered mortgage involves executing a formal mortgage deed that is registered with the local sub registrar’s office under the Registration Act.

Key Features of a Registered Mortgage:

• A formal mortgage deed is drafted and signed.
• The document is registered with the government authority.
• Higher stamp duty and registration charges apply.
• Public record of the mortgage is created.

This type of mortgage provides an added layer of legal transparency, as the charge on the property becomes publicly recorded.

Advantages:

• Stronger documented evidence of mortgage terms
• Clear public record of the lender’s charge
• Enhanced legal clarity in case of disputes

Considerations:

The primary drawback is the higher cost due to stamp duty and registration fees, which vary by state.

Major Differences Between Equitable and Registered Mortgage:

While both serve the same fundamental purpose — securing the lender’s interest — their execution differs significantly.

• Documentation: Equitable mortgage relies on the deposit of title deeds; a registered mortgage requires a formal registered deed.
• Cost: Equitable mortgages generally have lower stamp duty; registered mortgages involve higher charges.
• Public Record: Registered mortgages are recorded in government records; equitable mortgages typically are not publicly registered.
• Process Complexity: Equitable mortgages are relatively quicker and simpler to execute.

Despite these differences, both types give the lender the right to recover dues by enforcing the security if the borrower defaults.

Why Banks Choose One Over the Other?

In most loan against property transactions, banks prefer equitable mortgages because they are cost-effective and operationally efficient. However, in certain cases, such as high-value loans or specific state regulations, lenders may require a registered mortgage for additional legal protection.

The choice may depend on:

• State-specific property laws
• Loan size
• Internal risk policies of the lender
• Type of property (residential vs. commercial)

Borrowers should always clarify the type of mortgage being created before signing documents.

What Does this Mean for Borrowers?

If you are applying for a loan against property, understanding the mortgage structure helps you:

• Estimate upfront costs accurately
• Understand legal obligations
• Know how your property is being secured
• Plan for future refinancing or loan closure

Additionally, when you fully repay the loan, the lender must release the mortgage and return all original property documents. In the case of a registered mortgage, a formal release deed may also require registration.

Legal Rights and Enforcement:

Under both mortgage types, if a borrower defaults on repayment, the lender has the legal right to initiate recovery proceedings. The specific enforcement mechanism depends on applicable laws, such as the SARFAESI Act in India.

This makes it essential for borrowers to evaluate repayment capacity carefully before opting for a loan against property.

Final Thoughts:

Whether through an equitable or registered mortgage, the purpose remains the same — securing the lender’s interest while enabling borrowers to access funds against their property. While equitable mortgages are more common due to their cost-effectiveness, registered mortgages offer greater public transparency.

Before proceeding with a loan against property, take the time to understand which mortgage structure applies to you. Clarity today can prevent legal and financial complications tomorrow.