Mortgage vs Charge: Difference and Comparison

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

Key Takeaways

1. Mortgage is a legal agreement in which a lender lends money to a borrower to purchase a property, with the property serving as collateral for the loan.
2. Charge is a legal claim against an asset that provides security for a debt but does not transfer ownership of the asset to the creditor.
3. A mortgage involves transferring property ownership to the lender until the loan is repaid, while a charge does not include a transfer of ownership.

Mortgage vs Charge

A mortgage is a type of security interest used to secure a loan to purchase property. When a borrower takes out a mortgage, they pledge the property as collateral for the loan. A charge is a type of security interest that can be used to secure any type of debt or obligation. Unlike a mortgage, a charge does not involve pledging a specific property as collateral.

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

Comparison Table

Parameter of Comparison	Charge	Mortgage
Property applied to	Charged on movable and immovable property	Charged on Immovable property
Payment Period	Infinite Payment Period	Fixed payment period
Originality- Formation	Created by the operation of law	Agreement and Act between two parties
Liability	No personal liability except for exceptional cases with contract introduction	Personal liability is expected except when excluded by a contract
Registration	Requires registration under the law -Transfer of Property Act 1882	It does 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 honour to the other for the transfer of immovable property, and it happens between a borrower and a lender. It is mainly a transfer of interest from one party to another.

In this case, the ownership of the property stays with the borrower and the possession is transferred to the lender at 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 can sell the property to recover their financial input.

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) cannot 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. Depending on the agreement, payments can direct to the lender or go via the mortgagor.
3. Mortgage by the conditional sale – This is a mortgage on sale with an apparent 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 payment date for the property, which will be transferred back to the original owner upon payment of the mortgage loan on the agreed-upon date.
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, selling the property or foreclosing it in the case is a nonpayment issue.
6. Anomalous Mortgage – This is a mortgage that is not by any chance any of the mortgages mentioned earlier type, i.e. it is a mortgage that is not an Equitable Mortgage, Simple Mortgage, mortgage by conditional sale or usufructuary mortgage.

What is Charge?

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

There exist two types of Charge.

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

The 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 cannot pay as agreed upon.
2. Mortgages have a personal liability attached except where a contract excludes them. In contrast, a charge has no personal liability except when stated in a contract.
3. Mortgages are mainly the transfer of interest ownership from one party to another for an immovable asset. At the same time, the charge is just a way of securing a debt through a pledge, hypothecation or even a mortgage.
4. The lender doesn’t get to sell the property in charge to recover the amount, while the property can be sold off to another person’s mortgage.
5. Charges don’t require registration under the law, while mortgages require registration under the property transfer act of 1882.
6. Whereas mortgage transfer interest, A charge is only used for the sole purpose of giving the right of receiving payment out of a particular property and does not operate as a transfer of an interest in the property.

References

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