Mortgage and Hypothecation Differences

Both of these have something to do with the secured loan. For both of these, the borrower needs to put in something (such as hypothecation or mortgage) to secure the deal for the lenders.

  • A mortgage is a charge against immovable properties like land, building, warehouse, etc. A mortgage has to do with something attached to the earth in some way or another.Hypothecation is a charge against movable property cars, accounts receivablesAccounts ReceivablesAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year.
  • read more, stocks, etc.

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Mortgage vs Hypothecation Infographics

Key Differences Between Mortgage and Hypothecation

  • A mortgage is taken for a huge amount, whereas hypothecation is done for a small amount.A mortgage is done for immovable properties like land, building, warehouse, etc. On the other hand, hypothecation is done for movable properties like cars, vehicles, stocks, etc.Under the mortgage, the interest of the asset would be transferred to the lender first, and then once the amount is paid off, it is re-transferred. But if the borrower can’t pay the amount, then the immovable property is sold off. Under hypothecationHypothecationHypothecation is a process where a lender receives an asset offered to him/her as collateral security. It is done mainly in assets that are movable in nature to establish the charge against collateral security for a particular loan.read more, the interest of the asset isn’t transferred. Rather, when the borrower cannot pay the amount due, the movable property is possessed and then sold off to get back the proceeds.For a mortgage, a mortgage deed is required as a legal document. For hypothecation, the hypothecation deed is necessary as a legal document.The tenure of a mortgage is more since the loan amount is huge. But in the case of hypothecation, the term is lesser since the amount of loan is lower.

Comparative Table

Conclusion

After a discussion and comparative analysis between the mortgage and the hypothecation, it is not wise to say that one is better than another; because both serve different purposes. Depending on the purpose you have, you need to take the loan. However, in terms of convenience and flexibility, hypothecation is much better; because there’s less risk, and you will also pay lower interests.

In the case of a mortgage, you need to pay more because the amount is huge, and you can lose your property any time if you default. As an individual, it’s important that you understand both of them well and then act on your knowledge. The decision to take the mortgage or the hypothecation would depend on what purpose you have for taking the loan.

This has been a guide to mortgage vs Hypothecation. Here we discuss the top differences between the two, infographics, and a comparative table. You may also have a look at the following articles for gaining further knowledge in Accounting –

  • Rent to Own HomeMortgage Bond MeaningAdjustable-Rate Mortgage CalculatorRehypothecationAccrued Expenses and Accounts Payable