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Mortgage is loan secured by real property. A mortgage occurs when an owner pledges his or her interest (right to the property ) as collateral of the loan . As with other type of loans mortgage has an interest rate scheduled to amortize over a period of time. Typically the period is30 years. Mortgage loans are generally structured long term loans , the periodic payments are similar to annuity calculated according to time value of money.
· There are several features of a mortgage loan.
Interest-It can be fixed or changed at predefined periods
They have a maximum term after which it has to be repaid
Frequency of payment can change or remain the same.
Prepayment may be allowed or disallowed on the whole or part of the payment.
· There are two types of mortgage loans fixed rate mortgage –where periodic payment remains the same throughout the loan
· Adjustable rate mortgage or floating rate mortgage-where after a period the amount would move up or down in accordance with certain interest.
· Since the interest risk in ARM is transferred to the borrower the initial interest rate could be1-2% lower than the avg of30 year fixed rate. The variance in interest later on would depend on debt market conditions.
Hypothecation is used for creating charge against security of movable assets but here the possession of the security remains with the borrower itself. Here the lender has to first take possession of the security before selling it. AUTO LOANS ESPECIALLY FINANCING OF COMMERCIAL VEHICLES IS DONE IN THE Hypothecation ROUTE. Vehicle remains with the borrower but the same is hypothecated to the bank or financer.
· In case the borrower defaults the bank or financer gives notice and can take possession of the asset.
· Loan can also be taken by hypothecation of stocks and debtors.
· In short unlike in mortgage in hypothecation the ownership of the asset remains with the borrower.
· Mortgage loans are for long term may be30 years but hypothecation loans are for shorter periods.
· Mortgage loan are for high value immovable assets mainly land &building. Hypothecation loans are for movable assets like vehicles .
Mortgage
A mortgage is a contract between the lender and the borrower that allows an individual to borrow money from a lender for the purchase of housing. A mortgage is a charge created for property such as real estate that are immovable
The mortgage will come to an end once in either two circumstances; if the loan obligations are met, or if the property is seized. Mortgages have become the widely used method for purchasing real estate assets without having to pay the total amount at once.
Hypothecation
Hypothecation is a charge that is created for assets that are moveable such as vehicles, stocks, debtors, etc. Hypothecation is for property that is moveable in nature.
The loan acquiring from any institution against your property to be held by the institution with term and conditions specified by the institution called Mortgage. Whereas the action against you by any institution in case of default to pay for the acquired loan by you and as per the term and condition specified by the institution and already agreed by you with a signature of hypothecation document called hypothecation.
