Difference between Mortgage and Hypothecation

Mortgage and hypothecation are the terms which are used when a bank or financial institution give loans to its customers. Many people get confused by both the terms and often fail to distinguish between these two terms. While under both mortgage and hypothecation goods or property is used by the borrower however there are many differences between the two, given below are some of the differences between mortgage and hypothecation –

  1. While Mortgage is done for immovable property like land and building whereas hypothecation is done for movable property like car, two wheeler, laptop, stock of raw material and so on.
  2. In mortgage there is transfer of interest in property to the creditor but in hypothecation there is no transfer of interest in property to the banker or financial institution giving loan and hence the ownership of items hypothecated remains with debtor and not with creditor.
  3. Housing loan is an example of mortgage while car loan, consumer loans are some of the examples of hypothecation.
  4. Mortgage is for long period of time ranging from 3 year to 20 years while hypothecation is for short period of time ranging from 6 months to 5 years.
  5. Mortgage is usually safe because the value of land or building appreciate over period of time and hence there is no risk of fall in value of security whereas in case of hypothecation since the security involve goods or assets like car, raw material, two wheelers and usually on such goods there is no appreciation.
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