Mortgage Vs. Hypothecation – Similarities and Differences

Mortgage and hypothecation are terms that are generally used to explain charge on assets secured for any loan. In both the cases, the ownership lies with the lender which is the prime similarity between the two. However, these two mainly differ on the nature of asset secured, loan tenor, possession of the asset and loan amount.

Difference between Mortgage Vs. Hypothecation

Type of Security

Hypothecation is a charge created over a movable asset. The asset under hypothecation is usually a movable asset like a vehicle, stocks, accounts receivables, small machines etc. A mortgage is a charge created over immovable property which may include land, buildings, factory premise, godown /warehouse, anything that is attached to the earth or something permanently fastened to anything that is attached to the earth. One needs to note that crops though attached to earth cannot be included as “mortgaged” as they can be easily detached and sold.

Possession of the Asset

In the case of hypothecation, the possession of the asset remains with the borrower. In the case of a mortgage, the ownership is usually with the borrower but may not always be the case. It depends on the kind of mortgage created at the time of loan approval.

The amount of Loan

The amount of loan given against mortgage is usually higher than the amount of loan given just for hypothecation. For hypothecation against inventory, debtors, the vehicle generally, the amount is usually smaller; while the value of houses, land and building etc. are usually of higher value, therefore attracting higher loan amount. Certain loans like “Working Capital” loans are a combination of financing against hypothecation of immovable assets like debtors and stock and mortgage of property. 

Loan Tenor

Mortgage loans usually are of longer tenor (unless specific project/machinery which has a short definite life) as compared to loans against hypothecation. For example Tenor of vehicle loan is generally shorter than the tenor of home mortgage loans. Also, loans given against stock, debtors are of the shorter period (renewable after a year or half year) compared to a mortgage loan (usually of 10-20 years).

Similarities between Mortgage Vs. Hypothecation

Ownership of the Asset

In both the cases, the ownership of the asset remains with the borrower with the first right being that of the lender till the time the loan is repaid. In a case of default, the lender may sell off the asset to recover the loan.

Recovery of Loan

In either case (mortgage or hypothecation), the lender has a charge over the assets. Hence, a lender can recover the loss by selling the asset, in the case of default.


Last updated on : July 12th, 2017
What’s your view on this? Share it in comments below.

One Response

  1. Harish Agarwal

Leave a Reply

Letter of Credit Discounting
  • Benefits and Disadvantages of Equity Shares Investment
    Benefits and Disadvantages of Equity Shares Investment
  • Hybrid Financing Instruments
    Hybrid Financing and Various Such Instruments
  • Sources of Finance
    Sources of Finance
  • Advantages and Disadvantages of Preference Shares
    Advantages and Disadvantages of Preference Shares
  • Subscribe to Blog via Email

    Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 122 other subscribers

    Recent Posts

    Find us on Facebook

    Related pages

    debtors turnover formuladifference between loan and lendintracompany comparisonsresidual dividend policydisclosed factoringworking capital turnover interpretationconcept of debit and credit in accountinglong term debt calculatorinternational capital budgeting techniquesbcr calculatorwhat does installment buying meanexplanation of financial leveragemarginal costingcalculate payback period calculatorirr vs npvdebtor age analysiscredit the giverdefinition bookkeepingearning capitalization modeladvantages and disadvantages of internal rate of returnmeaning of discounted cash flowequipment leasing meaningmeaning of liabilities in hindiselling price variancehow to calculate gearing ratio from balance sheetdiscounting cash flows involvesdebt service coverage ratio calculatordifferent types of equity financingdebt hindi meaningdistinguish between capital structure and financial structurecorporate wealth maximization modeloverdraft chequehow to calculate asset turnover ratiodividends per share meaningirredeemable preference sharesfirm value calculatorfuture value and compoundingworking capital management bookcash debt coverage ratio formulanet fixed asset turnovermeaning of double entry bookkeepingthe giver drawingsreceivable turnover ratio analysisnon convertible debenturesdebt ratio calculator accountingformula for dividend payout ratiocow leasemeaning of finance in hindiadvantages and disadvantages of leasing assetsbep pointhow is wacc calculateddisadvantages of investing in bondswhat are horizontal mergersvertical mergerimpairment test ifrsformula of debtors turnover ratiodisadvantages of diseconomies of scalebank loan and bank overdraftnvp financerational investor definitiondebtor ratiobalance sheet capitalizationirrevocable transferable letter of creditdefination of accountancywhat is profit maximisationmerging and acquisition definitionmerging and acquisition definitionbcr benefit cost ratiopvf tablelc discounting chargeshybrid financing definitioncost behavior managerial accounting