Difference Between Mortgage
and Charge
Charge denotes an impediment over the title of the property, i.e.
when the charge is created on an asset, the asset is not allowed to
be sold or transferred. Basically, there are three ways through which
charge is created on the property, that are classified according to the
movability of the asset, i.e. On movable property, the charge is
created by way of pledge or hypothecation, whereas when the
charge is created on an immovable asset, then it is known as
Mortgage.
The basic purpose of creating a charge is to gain financial assistance
from the lending institution. There are many students, who juxtapose
charge and mortgage, but they are different. The former is just a
collateral, for the payment of the amount due, whereas the latter is
the transfer of interest in the asset, as collateral. To know some more
important difference between charge and mortgage, you need to
check out the article given below.
Content: Mortgage Vs Charge
:
1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion
Comparison Chart
Basis for
Mortgage Charge
Comparison
Mortgage implies the Charge refers to the security for
transfer of ownership securing the debt, by way of
Meaning
interest in a particular pledge, hypothecation and
immovable asset. mortgage.
Charge is created either by the
Mortgage is the result
Creation operation of law or by the act of
of the act of parties.
the parties concerned.
Must be registered When the charge is a result of
Registration under Transfer of the act of parties, registration is
Property Act, 1882. compulsory otherwise not.
Term Fixed Infinite
In general, mortgage No personal liability is created,
carries personal however, when it comes into
Personal
liability, except when effect due to a contract, then
Liability
excluded by an express personal liability may be
contract. created.
Definition of Mortgage
The mortgage can be defined as the transfer of interest, in a
particular immovable asset such as building, plant & machinery, etc.
in order to secure payment of the funds borrowed or to be borrowed,
an existing or future debt from the bank or financial institution, that
results in the rise of pecuniary liability.
:
It is something in which special interest in the property mortgaged, is
transferred by the mortgagor in favor of the mortgagee, so as to
assure the payment of money advanced. The ownership of the
property remains with the mortgagor (borrower/transferor), but the
possession is transferred to the mortgagee (lender/transferee).
When the mortgagor does not make payment in time, the mortgagee
can sell the asset, after giving a notice to the mortgagor.
Types of Mortgage
Definition of Charge
By the term ‘charge’ we mean, a right created by the borrower on the
property to secure the repayment of debt (principal and interest
thereon), in favor of the lender i.e. bank or financial institution, which
has advanced funds to the company. In a charge, there are two
parties, i.e. creator of the charge (borrower) and the charge-holder
(lender). It can take place in two ways, i.e. by the act of the parties
concerned or by the operation of law.
When a charge is created over securities, the title is transferred from
the borrower to the lender, who has the right to take possession of
the asset and realize the debt through legal course. The charge on
various assets is created according to their nature, such as:
On Movable stocks: Pledge and Hypothecation
On Immovable property: Mortgage
On Life such as insurance policy: Assignment
:
On Deposits: Lien
There are two types of charge:
Types of Charge
1. Fixed Charge: The charge which is created on ascertainable
assets, i.e. the assets which do not change their form like land
and building, plant and machinery, etc. is known as fixed charge.
2. Floating Charge: When the charge is created over
unascertainable assets, i.e. the assets which change its form
like debtors, stock, etc. is called floating charge.
Key Differences Between Charge and
Mortgage
The difference between charge and mortgage can be drawn clearly
on the following grounds:
1. The term mortgage alludes to a form of charge, in which the
ownership interest in a particular immovable property is
transferred. On the other hand, Charge is used to mean the
creation of right over the assets in favor of the lender, for
:
securing the repayment of the of the loan.
2. The mortgage is created out of the act of the parties concerned,
whereas charge is created either by the operation of law or by
the act of the charger holder and charge creator.
3. A mortgage requires compulsory registration under the Transfer
of Property Act, 1882. Conversely, when the charge is created
as a result of the act of the parties concerned, registration is
must, but when the charge is created by operation of law, no
such registration is needed at all.
4. The mortgage is for a specified term. Unlike charge, which
continues forever.
5. A mortgage carries personal liability, except when it is
specifically excluded by an express contract. As against this, no
personal liability is created. Nevertheless, when the charge
comes into effect due to a contract, then personal liability may
be created.
Conclusion
By and large, the creation of charge provides security to the lender
that the amount lent to the borrower will be repaid. On the other
hand, in mortgage, the borrower is bound to pay the mortgage
money or else the amount will be realized by selling the asset, so
mortgaged, but only by order of the Court, in a suit.
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