What is the Difference Between Mortgage and Hypothecation?

The main difference between a mortgage and hypothecation lies in the type of property used as collateral and the way the property rights are transferred during the transaction. Here are the key differences:

1. Property Type: A mortgage is a loan secured by immovable property, such as land or a building, while hypothecation is a loan secured by movable property, such as a car or stocks.
2. Ownership Transfer: In a mortgage, the borrower transfers the ownership of the property to the lender until the loan is paid off. However, the possession of the asset remains with the borrower. In hypothecation, the borrower retains both the ownership and possession of the asset, but the lender has a charge against the asset, which serves as collateral for the loan.
3. Loan Amount: Mortgages typically involve larger loan amounts, as they are often used to purchase real estate. Hypothecation, on the other hand, is usually done for smaller amounts, as the assets used as collateral are generally of lower value.
4. Interest Rates: Mortgages usually have higher interest rates compared to hypothecation loans, as there is more risk involved and the amount borrowed is larger.

In summary, a mortgage involves borrowing against immovable property with a transfer of ownership to the lender, while hypothecation involves borrowing against movable property without transferring ownership. Mortgages typically have higher loan amounts and interest rates compared to hypothecation loans.

Comparative Table: Mortgage vs Hypothecation

Here is a table highlighting the differences between mortgage and hypothecation:

Mortgages are typically used for immovable properties like land and buildings, while hypothecation is used for movable properties like vehicles and stocks. Mortgage loans generally have a higher amount and a longer tenure compared to hypothecation loans. Both mortgage and hypothecation allow the borrower to retain ownership of the asset, with the lender having the first right to the asset until the loan is repaid.