What is mortgage?
A mortgage is a transfer of an interest in immovable property and it is given as a security for a loan. The ownership of an immovable property remains with the mortgagor itself but some interest in the property is transferred to the mortgagee who has given a loan. A mortgage is a kind of security given by the borrower for repayment of the loan to the lender. The object of a mortgage is to secure the debt or other obligation. It protects a lender for even if the borrower becomes insolvent the money can be realized from the property given by way of security.
Essential conditions of a mortgage
- There is a transfer of interest to the mortgagee.
- The interest created in specific immovable property.
- The mortgage should be supported by consideration.
How Mortgages Work
Individuals and businesses use mortgages to buy real estate without paying the entire purchase price upfront. Over a specified number of years, the borrower repays the loan, plus interest, until they own the property free and clear. Mortgages are also known as “liens against property” or “claims on property.” If the borrower stops paying the mortgage, the lender can foreclose on the property.
For example, in a residential mortgage, a homebuyer pledges their house to the bank or other lender, which then has a claim on the property should the buyer default on paying the mortgage. In the case of a foreclosure, the lender may evict the home’s residents and sell the property, using the money from the sale to pay off the mortgage debt.
The Mortgage Process
Would-be borrowers begin the process by applying to one or more mortgage lenders. The lender will ask for evidence that the borrower is capable of repaying the loan, which might include bank and investment statements, recent tax returns, and proof of current employment. The lender will generally run a credit check, as well.
If the application is approved, the lender will offer the borrower a loan of up to a certain amount and at a particular interest rate. Homebuyers can apply for a mortgage after they have chosen a property to buy or while they are still shopping for one, a process known as pre-approval. Being pre-approved for a mortgage can give buyers an edge in a tight housing market because sellers will know that they have the money to back up their offer.
Once a buyer and seller have agreed on the terms of their deal, they or their representatives will meet at what’s called a closing. The seller will transfer ownership of the property to the buyer and receive the agreed-upon sum of money, and the buyer will sign any remaining mortgage documents.
Kinds of Mortgage
As per Section 58 of Transfer of Property, there are six kinds of mortgages
- Simple Mortgage is defined under Section 58(b) of Transfer of Property Act, 1882.
- In a simple mortgage, the mortgagor does not transfer immovable property to the mortgagee but agrees to pay the mortgage money.
- The mortgagee agrees on a condition that in the event of not paying the mortgage money the mortgagee has every right to sell the property and can use the proceeds of the sale and such a transaction is called a simple mortgage.
- Mortgage by conditional sale is defined under Section 58(c) of Transfer of Property Act, 1882.
- In this mortgagee places three conditions to the mortgagor, and the mortgagee shall have the right to sell the property if:
- mortgagor defaults in payment of mortgage money on a certain date.
- as soon as the payment is made by the mortgagor the sale shall become void.
- on the payment of money by the mortgagor, the property is transferred and such a transaction is called a mortgage by conditional sale.
- Usufructuary Mortgage is defined under Section 58(d) of Transfer of Property Act, 1882.
- In this mortgage, the mortgagor delivers the possession of the property to the mortgagee and authorises the mortgagee to retain such property until the payment is made by the mortgagor and further authorise him to receive the rent or profit arising from such mortgaged property and to appropriate the same instead of payment of interest. Such a transaction is called a Usufructuary transaction.
- English Mortgage is defined under Section 58(e) of Transfer of Property Act, 1882.
- In this mortgage, the mortgagor transfers the property absolutely to the mortgagee and binds himself that he will repay the mortgage money on the specified date and lays down a condition that on repayment of money mortgagee shall re-transfer the property. Such a transaction is called an English mortgage transaction.
Deposit of title-deeds
- Deposit of title -deeds are defined under Section 58(f) of Transfer of Property Act, 1882.
- In this mortgage where a person is in Calcutta, Madras, Bombay and in any other towns as specified by the state government and the mortgagor delivers to a creditor or his agent the documents of title of immovable property with an intent to create security and then such a transaction is called Deposits of title-deeds.
- An Anomalous Mortgage is defined under Section 58(f) of Transfer of Property Act, 1882.
- A mortgage which is not any one of the mortgages mentioned above is called an anomalous mortgage.
The concept of mortgage is one of the important concepts under the Transfer of Property Act, 1882 as it helps in securing the debt to the mortgagor and also helps in redeeming the property as soon as the mortgagor pays back the amount due to the mortgagee.