What is a Mortgage

Mortgage (pronounced mor-gij) is a word derived from Latin where mortus means deed and gage means pledge. That’s how mortgage is a secured loan. So like all other loans it has to be repaid with interest as per mutually decided terms. These terms specify the amount of payments, the frequency of payment, and the duration of repayment. Payments are usually made monthly.

The life of the mortgage varies depending upon the amount of loan, the age of the mortgagor, etc. Additionally, the mortgagor pays the mortgagee certain fees associated with borrowing the money. These fees might include processing fee, cost for obtaining reports on the borrower's credit history, etc. For instance a person wishes to buy a car, yet does not have sufficient funds to out rightly pay for it he still can buy with an auto loan for the amount either from the car dealer or an auto loan providing agency, a financial institution, or a private lender, etc., by pledging his property to the car dealer (or other financier) as a security.

Security means a guarantee that he will repay the money. We then say that he has bought the car by mortgaging his property. He is then regarded as mortgagor and the agency is called the mortgagee (creditor/lender). Usually lenders insist that the mortgager some pays part of the cost price called ‘down payment’ as a pre-condition for giving loan.

What happens if the mortgager does not repay the loan? The lender is free to take possession of the mortgaged property and he can sell it to recover his dues. This is called foreclosure. The question in this case is whether he would be able to recover whole of his dues. He would be, if he were careful enough, in the first place, to have determined the market value of the property (through appraisal of the property by a qualified land valuer) at the time of giving loan and be assured that it is more than the amount of loan. If he is more careful, he would also have gathered information about borrower’s income, credit history, and any other borrowings, all of which help him decide the debtor’s creditability.

Mortgage is usually finalized with the help of a legal document. It is then registered at the Registrar’s office after paying a heavy stamp duty. This conveys the titles to the mortgagee who becomes the legal titleholder of the asset. However it is possible to save the stamp duty by taking recourse to what is called the ‘equitable mortgage.’ In this instance the mortgager hands over the title deeds of the mortgaged property to the car dealer (or auto loan dealer). In this case the Registrar will be in the dark about the transaction—with the result that the encumbrance certificate in relation to the mortgager’s property will proclaim ‘no encumbrances.’

What happens if the mortgager has repaid the loan with interest within the stipulated period? The Registrar recovers the house to his name. In the case of the equitable mortgage, mortgagee of course returns the title deeds to the other.