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What Is the Difference Between Pledge, Hypothecation and Mortgage?

We all take loans to fulfill our requirements at some point of time in our lives. Loans can be taken from different financial institutions like banks, NFBCs, etc. Such lenders always keep some sort of security against the loan to safeguard the amount given as a loan. In case the borrower fails to make the payment within the agreed time-frame, the lender can then use the security to protect his or her investment.

There are different types of securities taken by the lender against the loan, such as Pledge, Hypothecation and Mortgage. When an individual or an organization applies for a loan, the bank or the lender takes security against the loan amount. This way, the bank or the lender can sell the assets owned by the borrower in case he or she defaults on the payment.

Pledge

In case of a Pledge, the lender holds on to certain goods or items such as gold, stock or certificates till the time the borrower makes the complete payment of the loan amount. If in case the borrower fails to make the payment on time, the lender can then proceed to sell off those items kept as security as a means to recover the loan amount. This way, the lender reduces the risk on its part.

Hypothecation

In case of a Hypothecation loan, the possession of the assets (that are to be used as security against the loan amount) is still with the borrower. Hence, the lender has to first take possession of the asset in order to recover the loan amount. Hypothecation is basically used to describe movable assets used as a security against the loan amount by the lender. For example, if a borrower has taken a loan for buying a vehicle and then defaults on the EMI payment, the lender can then proceed to take possession of the vehicle as a means of recovery.

Mortgage

In case of a mortgage loan, the borrower can use immovable assets such as a house, building or a piece of land as security against the loan. In case the borrower defaults on his payments, the lender can than proceed to take possession of the immovable asset and sell it off to recover the loan amount. Mortgage is used for immovable assets such as a house, building or a piece of land. Mortgage interest rate is the rate of interest charged on a mortgage loan. These rates can vary from 8.15% to 11.80% p.a.

These are the different types of terminologies used in case someone applies for a housing loan, including home mortgage loan. Always stay aware to make the right decision. If you seek a home loan at competitive interest rates along with accessible loan terms, then get in touch with our experts at Muthoot Homefin, the housing loan arm of Muthoot Group.

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