What are mortgage loans?

Section 58 (a) of the TRANSFER OF PROPERTY ACT, 1882, defines mortgage as, “A mortgage is
the transfer of an interest in specific immovable property for the purpose of securing the payment
of money advanced or to be advanced by way of loan, an existing or future debt, or the
performance of an engagement which may give rise to a pecuniary liability. “
The bold letters signifies the essential elements for the creation of valid mortgage in favor of the
lender over the immoveable property.

Types of Mortgages:

 There are six kinds of mortgages which are detailed as under:

1. Simple Mortgage: It has below characteristics:-

i)   That the mortgagor must have bound himself personally to repay the loan

ii)  That to secure the loan he has transferred to the mortgagee the right to have the specific
immovable property sold in the event of his having failed to repay

iii) That the possession of the property is not delivered to the lender.

2. Mortgage by Conditional Sale: It’s defined as a situation, where the mortgagor ostensibly sells
the mortgaged property –

i)   on the condition that on default of payment of the mortgage money (loan) on a certain date the
sale shall become absolute or

ii)  on condition that on such payment being made the sale shall become void or,

iii) on the condition that in such payment being made the buyer shall transfer the property to the
seller,

PROVIDED that no such transaction shall be deemed to be a mortgage, unless the condition is
embodied in the document which affects or purports to affect the sale?

This kind of mortgage came into vogue in India during Muslim rule and was given legal recognition in
the Bengal Regulation Act, 1978.

3. Unsufructuary Mortgage: It has below characteristics:-

i)   That the possession of the property is delivered to the mortgagee;

ii)  That the mortgagee is to get rents and profits in lieu of the interest or principal or both;
iii) That no personal liability is incurred by the mortgagor and
iv) The mortgagee cannot foreclose or sue for sale.
v)  That no time limit can be fixed expressly during which the mortgage is to subsist.
                              This is not prevalent in India

4. English Mortgage:   It has below characteristics:-

i)   That the mortgagor should bind himself to repay the mortgage money/loan on a certain day;

ii)  That the mortgaged property should be transferred absolutely to the mortgagee ; and
iii) That such absolute transfer should be made subject to a proviso that the mortgagee will recover
the property to the mortgagor, upon the payment by him of the mortgage money on the appointed
day

The difference between the mortgage by conditional sale and English mortgage is that in English
mortgage, the mortgagor binds him personally to repay the money.

5. Mortgage by Deposit of Title Deeds:

In England and popularly in India, this mortgage is called the equitable mortgage. Under the
definition under Section 58 (f) of Transfer of Property Act, 1882, the essential requisites of such
mortgage are:
i)   a debt should be there
ii)  deposit of the title deed with the lender (most essential)
iii) said deposit is with intention that the said title deed shall be security for the debt.
 
Section 96 of the Transfer of Property Act, 1882 places mortgages by deposit of title deeds on the
same footings as simple mortgages. As such, the security can, like a simple mortgage can be
enforced by a suit for sale of mortgaged property, of course, by the process of the law. And this kind
of mortgage does not require registration and is at par with any other legal mortgage.

6. Anamolous Mortgage:

A mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructuary, an

English mortgage or a mortgage by deposit of title deeds within the meaning of Section 58 of
Transfer of Property Act is an Anomalous mortgage. 

Balloon mortgages last for a much shorter term and work a lot like a fixed-rate mortgage. The
monthly payments are lower because of a large balloon payment at the end of the loan. The reason
why the payments are lower is because it is primarily interest that is being paid monthly. Balloon
mortgages are great for responsible borrowers with the intentions of selling the home before the
due date of the balloon payment. However, homeowners can run into big trouble if they cannot
afford the balloon payment, especially if they are required to refinance the balloon payment through
the lender of the original loan

Conventional / Low Ratio Mortgages

A mortgage where the down payment is equal to 20% or more of the property’s value/purchase
price. A low-ratio mortgage does not normally require mortgage protection insurance.

High Ratio Mortgages

A High-Ratio Mortgage is one where the borrower is contributing less than 20% of the
value/purchase price of the property as the down payment. These types of mortgages must
have mortgage default insurance through Canada Mortgage and Housing Corporation (CMHC),
Genworth Financial or Canada Guarantee; the three mortgage insurance companies in Canada.

Open Mortgages

An open mortgage allows you the flexibility to repay the mortgage at any time without penalty.
Open mortgages usually have shorter terms, but can include some variable rate/longer terms as
well.  Mortgage rates on Open Mortgages are typically higher than on Closed Mortgages with similar
terms. 

Closed Mortgages

A closed mortgage is a mortgage agreement that cannot be prepaid, renegotiated or refinanced

before maturity, except according to its terms. 

Fixed Rate Mortgages

The interest rate of a fixed rate mortgage is determined and locked in for the term of the mortgage.
Lenders often offer different prepayment options allowing for quicker repayment of the mortgage
and for partial or full repayment of the mortgage.

Variable Rate Mortgages (VRM) / Adjustable Rate Mortgages (ARM)

These types of loans differ from a fixed rate mortgage in that the mortgage rate may be changed
during the term of the mortgage. Generally, these mortgages are initially set up like a standard loan,
based on the current interest rate. The mortgage is reviewed at specified intervals and if the market
interest rate has changed, either changing the size of the payment or the length of the amortization
period (or a combination of both), the lender then alters the mortgage repayment plan.

) Rights of Mortgagor 

Right of Mortgagor are as follows-

I) Right to Redeem - 

         According to Section 60 of the Transfer of Property Act 1882, At any time after the principal
money has become due, the mortgagor has a right on payment or tender at a proper time and place
of the mortgage-money to require the mortgagee

              (a) to deliver to the mortgagor the mortgage-deed and all documents relating to the
mortgaged property which are in the possession or power of the mortgagee,

              (b) where the mortgagee is in possession of the mortgaged property, to deliver possession
thereof to the mortgagor, and

              (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to
such third person as he may direct, or to execute and (where the mortgage has been effected by a
registered instrument) to have registered an acknowledgement in writing that any right in
derogation of his interest transferred to the mortgagee has been extinguished:

    Provided: that the right conferred by this section has not been extinguished by the act of the
parties or by decree of a court. The right conferred by this section is called a right to redeem and a
suit to enforce it is called a suit for redemption. Nothing in this section shall be deemed to render
invalid any provision to the effect that, if the time fixed for payment of the principal money has been
allowed to pass or no such time has been fixed, the mortgagee shall be entitled to reasonable notice
before payment or tender of such money. Redemption of portion of mortgaged property-Nothing in
this section shall entitle a person interested in a share only of the mortgaged property to redeem his
own share only, on payment of a proportionate part of the amount remaining due on the mortgage,
except only where a mortgagee, or, if there are more mortgages than one, all such mortgagees, has
or have acquired, in whole or in part, the share of a mortgagor.

II) Right to inspection and production of documents -

         According to Section 60B of the Property Act, 1882 A mortgagor, as long as his right of
redemption subsists, shall be entitled at all reasonable times, at his request and at his own cost, and
on payment of the mortgagee's cost and expenses in this behalf, to inspect and make copies or
abstracts of, or extracts from, documents of title relating to the mortgaged property which are in the
custody or power of the mortgagee.

III) Right to redeem separately or simultaneously -

          According to Section 61 of the said Act, A mortgagor who has executed two or more mortgages
in favour of the same mortgagee shall, in the absence of a contract to the contrary, when the
principal money of any two or more of the mortgages has become due, be entitled to redeem
anyone such mortgage separately, or any two or more of such mortgages together.

IV) Right of usufructuary mortgagor to recover possession -

         In the case of a usufructuary mortgage, the mortgagor has a right to recover possession of the
property together with the mortgage-deed and all documents relating to the mortgaged property
which are in the possession or power of the mortgagee,-

          (a) where the mortgagee is authorized to pay himself the mortgage-money from the rents and
profits of the property,-when such money is paid;

          (b) where the mortgagee is authorised to pay himself from such rents and profits or any part
thereof a part only of the mortgage-money, when the term (if any) prescribed for the payment of
the mortgage-money has expired and the mortgagor pays or tenders to the mortgagee the
mortgage-money or the balance thereof or deposits it in court hereinafter provided.  (Section 62 of
TPA)

See....Difference between Mortgage and Lien

V) Accession to mortgaged property -

                According to Section 63 of the Transfer of Property Act, 1882 Where mortgaged property in
possession of the mortgagee has during the continuance of the mortgage received any accession,
the mortgagor, upon redemption shall, in the absence of a contract to the contrary, be entitled as
against the mortgagee to such accession.

        Accession acquired in virtue of transferred ownership- Where such accession has been acquired
at the expense of the mortgagee and is capable of separate possession or enjoyment without
detriment to the principal property, the mortgagor desiring to take the accession must pay to the
mortgagee the expense of acquiring it.

         If such separate possession or enjoyment is not possible, the accession must be delivered with
the property; the mortgagor being liable, in the case of an acquisition necessary to preserve the
property from destruction, forfeiture or sale, or made with his assent, to pay the proper cost
thereof, as an addition to the principal money, with interest at the same rate as is payable on the
principal, or, where no such rate is fixed, at the rate of nine percent per annum. In the case last
mentioned the profits, if any, arising from the accession shall be credited to the mortgagor. Where
the mortgage is usufructuary and the accession has been acquired at the expense of the mortgagee,
the profits, if any, arising from the accession shall, in the absence of a contract to the contrary, be
set off against interest, if any, payable on the money so expended.

VI) Renewal of mortgaged lease  -

                  According to Section 64 of the Act, where the mortgaged property is under lease, and the
mortgagee during possession of the mortgaged property gets renewal of the lease, then the
mortgagor has the right of redemption with renewal of the lease.

           Under Section 65 of the Transfer of Property Act, 1882 the liabilities of the mortgagor are as
follows -

1) A Mortgagor must have the right to mortgage such property;

2)  The mortgagor must have a legal title of the property;

3) The mortgagor is liable to pay all taxes if the property is not in the possession of the mortgagee.

4) The mortgagor is liable to pay the lease rent of the mortgaged property if the mortgaged property
is under the lease. The mortgagor must comply also with the terms and conditions of the lease deed
if the mortgaged property is under lease deed; and

5) The Mortgagor is liable to comply also with the terms and condition of the previous mortgage
deed if any relating to the same property

RIGHTS OF MORTGAGEE :-
Following are the important rights of mortgagee :
1. Selling Right :-
If borrower fails to return the loan in time then the mortgagee has the right to sell the property of
the mortgagor. But it will be sold and getting decree from the court. Property will be sold by auction.

2. Shortage Of Money Case :-

After selling the property if amount is less then the loan, the balance can be recovered from the
person by getting the decree from the court.

3. Usufructuary Case :-
In this case mortgagee has no right to sell the property and to obtain the decree from the court. The
banker can retain the possession till the recovery of the loan.

4. Refusal Of Debt :-
If a borrower refuses to return the loan or he is unable to pay the debt then the lender can get a
foreclosure decree from the court.

5. Adjustment Of Payment :-
The banker has a right to distribute the payment received after the sale of property according the
principal amount, interest and other charges.

6. Joint Suit :-
If the mortgagor are more than one person then suit will be filed against all of them if the loan is not
returned

7. Sale Of Private Property :-

In case of private property the mortgagee will issue at least 3 months notice to the mortgagor before
selling the property.

Liabilities of Mortgagee :

1. A mortgagee is bound to sue on behalf of all the mortgagees in respect of which the mortgage
money has become due in the absence of express contract.During  the continuance of the
mortgage,the mortgagee is bound.

2. To manage the property as aperson of ordinary prudence would manage if it were his own.

3. To use his best endeavour to collect the rents and profits thereof.

4. In the absence of a contract to the contrary,to pay Government revenue and the other charges
of  apublic nature and all rents,out of the income of the property.

5. In the absence of a contract to the contrary,to make such necessary repairs as the income of the
property permits.

6. Not to commit ant act which is destructive or permanently injurious to the property.

7. When the whole or any part of the property is insured against loss or damamge by fire,in case of
such loss or damamge to reinstate the insured property with the money obtained from the
insurance policy or to discharge the mortgage debt with it,if the mortgagor so dircets.
8. To keep clear,full and accurate accounts of all sums received and spent by him as mortgaged and
give them to the mortgagor when asked.

9. To debit receipts from the mortgaged property or where such property is personally occupied by
him a fair occupation rent thereof after deducting the expenses of management,the collection
charges,revenue and costs of repairs,first agaginst the interest on the mortgage money and then
against the principal.

10. To account for the receipts from the mortgaged property.Such accounting of receipt from the
proeprty shall be taken in lieu of interest on the prinicipal money given to the mortgagor.

This article is very useful to Mortgagor and Mortgagee to know their rights and liabilities of the
property in the Transfer of the property act