Difference Between Mortgage and Charge (With Table)

Mortgage vs Charge

The key difference between Mortgage and Charge lies in the fact 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.

Charge acts as an obstruction over a title of the property, when created it helps prevent the selling or transferring of an asset from one party to another.

A charge is created in 3 ways and classified according to the portability of the property.

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

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.


 

Comparison Table Between Mortgage and Charge (in Tabular Form)

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
Places to get Mortgage
Places to get 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
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Charges can be applied on both movable and immovable properties, Mortgagees, Pledge and Hypothecation

Calculation of Financial Charge
Calculation of Financial Charge

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.

 

Frequently Asked Questions (FAQ) About Mortgage and Charge

  1. Is a mortgage a fixed charge?

    It depends on whether the company takes out the mortgage on a circulating asset or a tangible asset. Circulating assets generally include receivable accounts, inventory, etc. whereas tangible or fixed assets include a building or a fixed property.

    A mortgage that is taken out on a building is a fixed charge. However, a floating charge can also be converted into a fixed charge on crystallization. But this only happens when a company undergoes liquidation.

  2. Who holds the deeds to a mortgaged property?

    The deeds or legal documents state that who owns a particular property or land. It enables a solicitor to check if a property can be sold or not, by the seller. These deeds are owned by the owner of that property.

    However, if there is any mortgage on to the land, then these deeds or documents will be found at its mortgage lender, the photocopies of which can be asked at any time. It also helps to know if there are any mortgages on a piece of property.

  3. What are the 3 types of mortgages?

    The three types of mortgages are – fixed-rate mortgages, adjustable-rate mortgages, and alternative mortgages.

    In fixed-rate mortgages, a person knows how much he has to pay every month. In adjustable rate mortgages, the monthly mortgage payment rises and falls along with the interest rates.

    Alternative or combination mortgages, change with time. They usually offer a low-interest rate initially and then their interest rate depends on the current market conditions.

  4. How long does a charge on a property last?

    The charge on a property lasts for 12 years. It is not possible to re-mortgage your house when a charging order is issued on it.

    However, this charge order can be lifted up by the approval of your creditor once you pay back the debt in full.

  5. Can I sell my house with a charging order?

    The record of the charging order is held at HM Land Registry once it has been granted. It is possible to sell a house with a charging order but only if a person pays the charge in full to the creditor.


 

Infographic

Charge vs Mortgage

 

Conclusion

In mortgage the borrower is bound to lose the mortgage if he fails to pay for it, this happens through a court order the charge is just a way of proving security to the lender to ensure that the amount borrowed is repaid in full.

The charge and Mortgage are all designed in a way that the lender has all the insurance to protect them from a case in which the borrower may fail to pay back the amount borrowed as per the agreement that is in place.


 

Word Cloud for Difference Between Mortgage and Charge

The following is a collection of the most used terms in this article on Mortgage and Charge. This should help in recalling related terms as used in this article at a later stage for you.

Mortgage and Charge
Word Cloud for Mortgage and Charge

 

References

  1. https://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?article=2025&context=articles
  2. https://core.ac.uk/download/pdf/7074676.pdf
  3. https://www.actuaries.org.uk/system/files/documents/pdf/mortprepayrpt.pdf

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