Difference Between Mortgage and Charge

Both charge and mortgage are different from one another with a charge being a collateral for the payment that is due and if one fails to pay, then a charge comes into play. Whereas Mortgage is the transfer of an interest in an immovable asset.

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Mortgage vs Charge

The difference between Mortgage and Charge is that mortgage is the transfer of interest to the borrower by the lender on a trust basis. The borrower promises to pay back the mortgage amount in due time.

A charge is the use of an asset as security when the borrower defaults the re-payment.

Mortgage vs Charge

If the property is immovable then it becomes Mortgage, if the property is moveable then it becomes a pledge.

Comparison Table

Parameter of ComparisonChargeMortgage
Property applied toCharged on movable and immovable propertyCharged on Immovable property
Payment PeriodInfinite Payment PeriodFixed payment period
Originality- FormationCreated by the operation of lawAgreement and Act between two parties
LiabilityNo personal liability except for special cases with contract introductionPersonal liability expected except when excluded by a contract
RegistrationRequires registration under the law -Transfer of Property Act 1882Does not require registration except when created by an act of parties

What is Mortgage?

This is an agreement between two entities where one gives a word of honor to the other for the transfer of immovable property to the other and it usually happens between a borrower and lender. It mainly is a transfer of interest from one party to another.

In this case, the ownership of the property stays with the borrower and the possession transferred to the lender to such a time when the borrower will have completed the agreed-upon payment price through the agreed-upon payment option.

If payment is not made in due time, the lender has an option to sell the property to recover their financial input back.

Mortgages are subdivided into the following categories:

  1. Simple Mortgage – This can be easily distinguished from another mode of a mortgage by the presence of one’s personal convince when the borrower fails to pay the lender can sell the property to recover the remaining amount and the possession of the property will remain with the borrower.
  2. Usufructuary Mortgage – This is a type of mortgage where if the borrower (Mortgagor) is not able to pay due to some circumstances can rent out the mortgage to a third party to receive rent from the mortgage and can pay this rent out to the lender. Payments can direct to the lender or can go via the mortgagor depending on the agreement in hand.
  3. Mortgage by the conditional sale – This is a mortgage on sale with a very clear condition that there will be a transfer back of the mortgage to the owner upon repayment of the loan.
  4. English Mortgage – Like the mortgage by condition sale this mortgage plan gives a specific date of payment of the property will be transferred back to the original owner upon payment of the mortgage loan on the fixed date agreed upon.
  5. Equitable Mortgage – This mortgage type gives the lender security by the talking possessions of all the original title documents of the property with the sole aim and purpose of appointing a new receiver, sell the property or foreclose it in case there is a nonpayment issue.
  6. Anomalous Mortgage – This is a mortgage that is not by any chance any of the above-named mortgage type I.E it is a mortgage that is not an Equitable Mortgage, Simple Mortgage, mortgage by conditional sale or usufructuary mortgage
mortgage

What is Charge?

This is an interest of security loans through a mortgage on company assets. It is the creation of an asset right to the lender for security purposes to repay a loan.

There exist two types of Charge

  1. Fixed Charge – These are the charges that are incurred on fixed assets or ascertain assets and include land and buildings.
  2. Floating Charge – They are charges that are charged on assets that are considered uncertain example stocks.

Key Components of a charge are:

  1. Terms of Sale
  2. A clear explanation of what happens when there is a default in payment
  3. Reliefs to the charger which should include the right of sale

Charges can be applied on both movable and immovable properties, Mortgagees, Pledge and Hypothecation

Main Differences Between Mortgage and Charge

  1. A charge can be paid for an infinite period while Mortgage is paid for a specific timeline and the property can be sold once one is unable to pay as agreed upon.
  2. Mortgages have a personal liability attached to it except in places where it is excluded by a contract while charge has no personal liability except when it is stated in a contract.
  3. Mortgages are mainly the transfer of ownership of interest from one party to another for an immovable asset while the charge is just a way of security to secure a debt by way of pledge, hypothecation or even a mortgage.
  4. The lender doesn’t get to sell the property in charges, to recover the amount while the property can be sold off to another person’s mortgages.
  5. Charges don’t require registration under the law, while mortgages do require registration under the property transfer act of 1882.
  6. Whereas mortgage transfer interest, A charge is only used for the sole purpose to give the right of receiving payment out of a particular property and does not operate as a transfer of an interest in the property.
Difference Between Mortgage and Charge

References

  1. https://core.ac.uk/download/pdf/7074676.pdf
  2. https://www.actuaries.org.uk/system/files/documents/pdf/mortprepayrpt.pdf
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