Jun 15, 2023Home Ally

Collateral And Security For Mortgage In India: What You Should Know

by Godrej Properties Limited



Mortgage Collateral And Security In India

When obtaining a mortgage in India, collateral and security are fundamental elements that borrowers must understand. These aspects provide lenders with assurance and protection in case of default. Let’s delve into the key points you should know about collateral and security in Indian mortgages. In India, when it comes to obtaining a mortgage, collateral and security play a crucial role. Here are some key points you should know.

Things To Know About Collateral And Security For Mortgage

1. Collateral Asset

Collateral is an asset or property that the borrower pledges to secure the mortgage loan. It provides the lender with a form of protection in case the borrower defaults on the loan. The most common form of collateral for a mortgage in India is the property itself, which is usually the house or the land being purchased.

2. Title Deed

The property being offered as collateral must have a clear and marketable title. This means that the property should have a legal ownership document, commonly known as the title deed. The lender will thoroughly examine the title deed to ensure that there are no existing liens, disputes, or legal issues associated with the property.

3. Encumbrance Certificate

An encumbrance certificate is a document issued by the local sub-registrar’s office that provides details of any mortgages, charges, or legal claims on the property. It is important to obtain an encumbrance certificate to ensure that the property is free from any encumbrances or liabilities.

4. Valuation Of Property

The lender will conduct a valuation of the property to determine its market worth. This valuation is usually done by an approved valuer, and the loan amount offered by the lender is generally a percentage of the property’s value. The valuation helps the lender assess the risk associated with the mortgage and determine the loan-to-value ratio.

In Conclusion

Collateral and security form the backbone of mortgage loans in India. By offering collateral, borrowers provide lenders with an asset that acts as security for the loan. Proper documentation, including mortgage deeds, helps establish legal enforceability. Other factors such as property valuation, insurance, default consequences, and associated costs, further contribute to the overall understanding and execution of a mortgage agreement.

Frequently asked questions 

1. Can the collateral property be sold or transferred during the mortgage tenure?

Ans. Typically, the collateral property cannot be sold or transferred during the mortgage tenure without the consent of the lender. The property acts as security for the loan until It is fully repaid. Any transfer or sale of the property during this period would require the lender’s involvement and approval.

2. What types of assets can be used as collateral for a mortgage in India?

Ans. In India, the most common form of collateral for a mortgage is the property itself, such as a house or land. However, certain financial assets like fixed deposits, insurance policies, or government securities may also be accepted as collateral, depending on the lender’s policies.

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