Whenever a loan is taken to purchase a house, the bank insists on creation of a charge on the property, In common parlance, this is called creation of mortgage on the property. The process creates a security in favor of the bank. This enables banks to secure the repayment of the loan. In case the borrower defaults on the repayment of the lan or the interest due, the bank can enforce the security.

In case of housing loans, continuing security of a residential building mortgaged to the bank is accepted provided the value of the property is sufficient to cover the liability of the housing loan with prescribed margin and the applicable interest charges.

A mortgage is a form of hypothecation of the property. The loan can be secured by either an equitable mortgage, mortgage by way of memorandum of entry or by a registered mortgage, The type of mortgage differs from one bank to another, depending upon the loan amount, value of property, customer profile etc.

An equitable mortgage is created by way of deposit of title deeds. The ownership documents of the property are deposited with the bank. No formal mortgage deed is executed. This is by far the simplest and cheapest form of mortgage.

In case of mortgage by way of memorandum of entry, the borrower has to sign a declaration stating the he is mortgaging the property to the bank. This declaration is entered in the memorandum of entry of mortgage which can be enforced by the bank in case of default in the repayment of the loan.

In contrast to both of these, the registered mortgage is the safest form of mortgage. This is also referred to as the English mortgage. No documents of the property are required to create an English mortgage. The borrower has to enter into a mortgage deed with the bank. This deed is then stamped and registered in order to make it enforceable.

This is an expensive mode of creating a mortgage. The stamp and registration charges have to be borne by the borrower. The borrower binds himself to repay the money as per the agreed schedule and transfers property absolutely to the mortgagee (bank) subject to the condition that the bank will retransfer the property back to the mortgagor.

Once mortgaged, the borrower cannot sell or transfer it to anyone else without the consent of the bank. While purchasing a property, the purchaser should also do a due diligence exercise and visit the registrar’s office to see any prior encumbrances to the property planned to be purchased to him.

Additional Security

In addition to the mortgage of the property, additional security may have to be rurnished under these circumstances:

In addition to the mortgage of the property, additional security may have to be rurnished under these circumstances:

• Where mortgage can not be provided or is inadequate

• Where the house is under construction

• Loans to allotees of flats / houses built by state housing development authorities or members of cooperative housing societies

Normally banks and financial institutions prefer to have the first charge on the property. In case the purchaser has availed of a loan from more than one bank or financial institution, a pari passu charge may be created in favor of the lenders. However this usually applies of large projects. In case of a pari passu mortgage, if there is a default in repayment, all the lenders share a right on the property as per the proportions of the loan amount disbursed by the banks and other financial institutions.