Most Indians believe in savings. Most prefer to spend on things that are necessary. This possibly led to savings becoming a habit for many in our country. However, due to increase in demand and inflation, people at times have very little option but to borrow money to meet their necessities. No doubt, there is a big gap between their reality and aspirations. For banks, this is an excellent opportunity to introduce attractive loan offers. Buying a home is perhaps one of the most crucial decisions of one’s lifetime. So, before you plan to buy a property, let’s understand in detail, home loans and the types of mortgage loans in India.
Before you sign an agreement with the bank, it’s important to understand:
- Kind of mortgage you would need to enter
- Documentation process
- Registration requirements
- Legal implications
What is a Mortgage?
A mortgage is simply an agreement between two parties where one party takes the money(loan) from another party, in return transfers the interest of the immovable property as a security deposit, until the repayment of the loan amount.
It is covered under the Transfer of Property Act, 1882 (the Act). There are six types of mortgages covered under this Act:
- Simple Mortgage:
- In this kind of mortgage, when a person takes a loan against a property, he does not deliver the possession(ownership) of the property to another person
- The person taking the loan must bind to terms agreed between both parties to refund the loan
- In case the person fails to repay, his property can be sold to recover the loan amount
Distinguishing Feature: Possession(ownership) is not delivered.
- Mortgage by Conditional Sale: In this kind of mortgage, one party sells his property to another on two conditions:
- In case the borrower defaults in repayment on the certain date, the lender has all the rights to sell the property
- If the loan amount is repaid within the time agreed by both parties, the sale of the property will stand invalid and the property will be transferred back to its original owner
Distinguishing Feature: Sale is not absolute (guaranteed).
- Usufruct Mortgage: In this kind of mortgage, the ownership is delivered to the borrower; and until the loan is repaid, he enjoys the benefits accruing from the property.
Distinguishing Feature: Possession(ownership) is delivered.
- English Mortgage: In this kind of mortgage, the borrower promises to repay the borrowed amount on a certain date. Once the loan amount is repaid on the agreed date, the lender needs to re-transfer the property to the borrower.
Distinguishing Feature: Property is transferred absolutely.
- Mortgage by deposit of title-deeds: In this kind of mortgage, the borrower deposits his title deeds of the property with the lender, as a security to the loan amount. A title deed is a document that proves the ownership of a property and gives specific rights to the person who holds it. But, it can only be done in the towns that are notified by the State Government.
Distinguishing Feature: Only Title Deeds are transferred.
- Anomalous Mortgage: Mortgage which cannot be categorized into any one of the Mortgages Listed above.
Distinguishing Feature: It’s exclusive.
Let’s also understand the difference between a “Simple Mortgage” and a “Memorandum of Deposit of Title Deeds”:
In Simple Mortgage, the terms of the mortgage, the loan amount, the liabilities and the obligations on the borrower are recorded and the parties agree to bind by those terms, whereas, the “Memorandum” in case of Mortgage by of Deposit of Title Deeds, doesn’t need to be compulsorily documented nor registered. Hence, the most important thing to keep in mind in case of the Mortgage by Deposit of Title Deeds is that the borrower must mandatorily deposit the title deeds of his immovable property as a security to the bank (lender). A written record known as the “Memorandum” is usually drawn up during the handover of title-deeds. But, if both parties choose to document the contract in writing, then the “Deposits” and the “Documents” both forms the integral part of the transaction.
Section 59 of the Act mandates that every mortgage other than the mortgage by deposit of title-deeds can be effected by a registered instrument. In the case of mortgage by deposit of title-deeds, the “Memorandum” does not serve as a registered instrument. But, once the memorandum contains other terms and conditions with regard to the deposit, then it is mandatory to register the document under Section 17(1)(c) of the Registration Act, 1908.
E-Filling of “Notice of Intimation” in the case of Mortgage by Deposit of Title Deeds:
Many times, the mortgage by deposit of title deeds are not recorded and it results in fraudulent practices like availing loans from multiple banks on the same property or disposing of the property which is already mortgaged.
To control this, Maharashtra Government has amended the Registration Act, 1908 by adding section 89B, which came into effect on 1 April 2013, which says, in the case of Mortgage by deposit of title deeds, the notice of intimation should be filed within 30 days.
We hope this article has helped you understand about home loans and types of mortgage loans in India, and with the above advice in mind, you should be better equipped to research and ultimately decide on what mortgage scheme that you and your lender feel can afford.
To help you in your home-buying process, RealDocs has created a mobile app that aims to help you determine what documents are required for a particular property based on the type of property, and most importantly, the applicable laws of your state. Feel free to download it from the Google Play Store, by clicking here.