Difference Between Mortgage and Hypothecation

A mortgage is one of the ways to raise cash utilizing the assets by creating a charge against immovable property where the amounts involved are generally very high, and the transfer of title is often passed. In contrast, Hypothecation is also raising cash by creating a charge against movable assets. However, the title of ownership is never transferred and generally involves much less than the mortgage.

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 receivables, stocks, etc.

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• 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 hypothecation, 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.

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.

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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 Home
• Mortgage Bond Meaning
• Adjustable-Rate Mortgage Calculator
• Rehypothecation
• Accrued Expenses and Accounts Payable