Wednesday, February 1, 2012

Mortgage and Loan


A Mortgage represents a loan or lien on a property/house that has to be paid over a specified period of time.
A Mortgage is defined in Section 58 of the Transfer of Property Act as the transfer of an interest in specific immovable property for the purpose of securing payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of any contract or engagement which may give rise to a pecuniary liability.
The transferor in case of the mortgage is called the Mortgagor, and the transferee as the mortgagee, the principal money and interest o which payment is secured for the time being are called the Mortgage Money, and the instrument of transfer, a Mortgage Deed.
Any person, company, association or body of individuals not otherwise disqualified can be the Mortgage.
Provisions of Mortgage in India
• In the case of a company or association, such a mortgage must be authorized by the Memorandum and approved by the Resolution of the Board of Directors or the governing body as the case may be.
• Under the Indian Contract Act a minor or a lunatic cannot create any mortgage in respect of their properties. A mortgage by a lunatic is void under Section 11 read with Section 12 of the Indian Contract Act.
• A partner has no implied authority to mortgage any immovable property belonging to a form (Section 19(2)(g) of the Indian Partnership Act)
• Under the Code of Civil Procedure, a person whose property I being managed by the collector cannot create nor submit his property to any mortgage.
• A Karta of a Mitakshara joint family cannot create a mortgage except for legal necessities and for the benefit of the estate. An executor in the absence of ant restriction can mortgage any property belonging to the estate of the deceased for the purpose of administration.
• A trustee cannot be the mortgagee of a trust property. A guardian of a minor is in the same position as the trustee.
Mortgage how effected?
Section 59 of the Transfer of Property Act lays down that hen the principal money secured is one hundred rupees or upwards, a mortgage, other than a mortgage but deposit of title deeds, can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses.
Where the principal money secured is less than one hundred rupees, a mortgage can be effected either by a registered instrument signed and attested as aforesaid, or by the delivery of the property.


A Loan is an arrangement in which the lender gives money or property to a borrower and the borrower agrees o return the property or repay the money. It is done usually along with interest, at some future points of time.
Usually there is a predefined time for the repayment of loan, and generally the lender has to bear the risk that the borrower may not repay the loan, even though modern capital markets have developed many ways of managing this risk.
The most common type of loan is the bank loan, which exists to lend money; it is for this reason that the banks offer a wide variety of ways to fund a business growth.
Types of Business Loans in India
• Line- of- credit loans. The most useful type of loan for a small business is the line-of-credit loans. This is a short term loan that extends the cash available in our business checking account to the upper limit of the loan contract. Line-of-credit loans are intended for purchases of inventory and payment of operating costs for working capital and business cycle needs. They are not intended for purchases of equipment or real estate.
• Secured and Unsecured loans. Loans can be secured or unsecured. A secured loan is the loan with collateral. That is, if a borrower pledges a property or other assets to the creditor and states that the creditor may take ownership if the borrower defaults on a loan and sell it to recover the loan amount. In most cases, lenders charged a lower interest rate on a secured loan than on an unsecured loan of comparable size. Most important example of secured loan is Mortgage.
Unsecured loans are the loans which are not attached to any collateral. They are unsecured loans because the banks have nothing to do if the borrower defaults to repay the loan amount.
• Term loan. Tern Loan can be defined as the loan from a bank for a specific amount that has a specified repayment schedule and floating interest rates. The term loans almost always mature between one to ten years. Term Loan is secured by a collateral security. Term Loan facilitates the borrower to raise a stipulated amount one time and plan the business expenditure or investment or purchases on his or her own.