In India, pledging a house, plot, or commercial property to raise funds is a common financial practice—known as a mortgage in English and popularly called gahan-khat or taran in Hindi/Marathi. Simply put, when an individual or business needs money and borrows against an immovable property (home/land/flat/shop), the lender obtains a legal interest over that property until the loan—principal and interest—is fully repaid. Once the dues are cleared, that charge is released and the borrower’s ownership becomes free from encumbrance.
Why do people opt for a mortgage?
People choose mortgage-backed loans to buy a home, expand a business, meet education/medical expenses, or consolidate high-interest debt. Loan Against Property (LAP) is a popular variant—if the property is clear and solely in your name, you can raise a substantial amount from a bank/NBFC against it. LAP is frequently used for working capital, business expansion, higher education, or medical needs.
Legal framework
Indian law clearly defines rights, obligations, and processes around mortgages. The Transfer of Property Act, 1882 (TPA) lays out the types of mortgages and key rules. The Indian Registration Act, 1908 governs when registration is required—registered instruments carry strong evidentiary value and lower the risk of title disputes. In persistent defaults, the SARFAESI Act, 2002 empowers lenders to enforce security interest and take possession/auction the mortgaged asset following due process. Together, these statutes protect both borrower and lender—provided documentation and procedures are properly followed.
How does a mortgage work?
A typical mortgage has: (1) the mortgagor—the owner/borrower who offers the property; (2) the mortgagee—the bank/NBFC; (3) the mortgage deed—the instrument recording terms; and (4) loan terms—principal, interest rate, tenure, EMI schedule, and covenants. The deed also specifies the remedies available to the lender in case of default and the route to enforcement.
Major types of mortgages (India)
In common practice you’ll find several forms:
- Simple Mortgage: The borrower does not part with possession; ownership remains with the borrower. On default the lender generally enforces through court sale (unless a special statutory/contractual power of sale exists).
- Usufructuary Mortgage: The lender may take possession or receive income (rent/crops) from the property and recoup dues from such income; there is typically no personal remedy against the borrower unless separately agreed, and no sale right unless conferred by law/contract.
- English Mortgage: Ownership is transferred to the lender subject to re-conveyance on repayment. Registration is compulsory (TPA §59; any mortgage of property worth over ₹100 requires registration—practically, always).
- Equitable Mortgage (Mortgage by Deposit of Title Deeds): The borrower deposits original title deeds with the lender. A registered deed is not required under TPA §58(f), but many States require a registered ‘memorandum/entry’ and stamp duty, and this mode is usually recognised only in notified towns/areas. Check local stamp & registration practice.
Note: Registered mortgages are generally stronger in evidence. Even with an equitable mortgage, maintain watertight paperwork and clarity on terms to avoid disputes.
Registration, EC & public records
Where registration is mandatory, the deed is recorded at the Sub‑Registrar’s office. As a result, the property’s Encumbrance Certificate (EC) will typically reflect registered charges only. An equitable mortgage created merely by depositing title deeds without a registered memorandum may not appear in the EC. Therefore, during diligence, check the EC along with CERSAI/bank‑charge search and relevant State registration records. Always obtain a recent EC while buying property.
Which loans use a mortgage?
Home Loans to purchase/construct a house, Business Loans, secured Personal Loans, and LAP are all common examples of mortgage‑backed financing.
Eligibility & valuation
Lenders assess the borrower’s income, repayment capacity, and credit history (CIBIL/credit score), and verify a clean title to the property via legal scrutiny and technical valuation. Loan amounts are sanctioned up to a percentage of market value (LTV—Loan‑to‑Value). EMI affordability depends on income/expenses and existing liabilities. Weak documentation, irregular income, or poor credit can lead to costlier loans or rejection.
Documentation & process (quick view)
Applicants submit KYC, income proof (salary slips/ITR), title papers (sale deed, prior chain, tax receipts, sanctioned plan), No Dues, and sometimes Society NOC. The bank’s legal/technical teams verify, terms are finalised, and a Sanction Letter is issued. Depending on the mortgage type, registration/deposit of title deeds is completed, followed by disbursement.
Tax benefits—use matters, not the product
Tax benefits apply when the loan is used for residential purchase/construction (home loan purpose). Typically, Section 80C allows deduction for principal repayment (up to the statutory cap) and Section 24(b) allows interest deduction (limits differ for self‑occupied vs. let‑out). Benefits are use‑based: if funds (whether labelled home loan or LAP) are used for purchase/construction, 80C and 24(b) may apply. Repairs/renovation do not qualify under 80C; under 24(b), repair/renovation interest has a lower cap (often around ₹30,000/year). If LAP funds are used for business, the interest may be claimed as a business expense, but the residential 80C/24(b) benefits won’t apply. Always confirm with current rules and a tax advisor.
What if you default?
Missed EMIs attract penal interest/late fees and hurt your credit score. Prolonged default may lead to enforcement under SARFAESI with notice, possession, and auction as per law. Set realistic EMIs, maintain an emergency buffer, and discuss restructuring/moratorium with the bank if income is disrupted.
After loan closure—complete these steps
On full repayment, obtain a written NOC from the lender; get a release/re‑conveyance registered where applicable; collect all original title deeds; ensure future ECs show ‘satisfaction/release’ of charge (ECs aren’t ‘deleted’; subsequent ECs reflect the cleared status); and update society/municipal records if any endorsement exists. Only after these steps is sale/transfer considered safe.
Common mistakes & how to avoid them
Borrowing from unregulated sources, signing blank/undated papers, executing deeds without reading, irregular EMIs, or selling without a registered release can all be disastrous. Stick to regulated banks/NBFCs, document everything, and keep payment proofs.
Which mortgage suits which situation? — quick comparison
| Type | Core trait | Possession/Income right | Registration status |
|---|---|---|---|
| Simple Mortgage | Court‑enforced sale on default | Ownership stays with borrower; sale via court unless special power exists | Registration generally required |
| Usufructuary Mortgage | Lender recovers from rent/crops/income | Income/possession rights with lender; no personal remedy typically | As per contract/statute |
| English Mortgage | Ownership with lender till repayment | With lender until discharge | Registration compulsory (TPA §59; over ₹100—practically always) |
| Equitable Mortgage | Deposit of original title deeds | Ownership with borrower; documents with lender | TPA §58(f) permits without a registered deed, but many States require a registered memorandum with stamp duty; typically valid only in notified towns/areas |
Tip: Before committing, check local Sub‑Registrar rules, stamp duty, and State‑specific processes.
Is LAP right for everyone?
LAP loans are usually larger and priced higher than home loans. Because end‑use is flexible, lenders emphasise income stability and marketability of the property. Consider LAP only when cash flows are clear and there’s no dispute/unauthorised construction on the property. Remember: default risks your family/business asset—borrow only what you can repay with certainty.
Beyond funding—mortgages demand discipline
A mortgage is not just a way to raise money; it demands financial discipline. Timely EMIs improve your credit profile and access to cheaper future credit. Conversely, delays, penalties, collection calls, and possible auctions create severe financial and emotional stress.
Conclusion
Within a robust legal framework, a mortgage lets you raise funds by offering property as collateral. With clear documentation, transparent terms, realistic EMIs, and a repayment plan, it’s a powerful tool. But avoid unregistered/opaque deals, stick to credible lenders, and follow legal formalities end‑to‑end. Understand tax rules if it’s a home‑use loan, and plan cash flows & risk management carefully if it’s LAP/business‑use.
Disclaimer: This content is for general information. Rules/rates/tax provisions change, and State‑level practices vary. Seek advice from a bank/NBFC and a registered lawyer/chartered accountant for your specific case.
Read Also : What Is a Lease Agreement? Registration, Stamp Duty, GST & TDS