Equitable mortgage is also known as Mortgage by deposit of title deeds As the name suggest, equitable mortgage is created by the borrower in favour of the lender by deposit of title deed of immovable property as security to a lender until the loan is fully repaid. This creates a charge on the property, though no legal procedure is involved. The deposit of title deed may or may not have been officiated by way of a written emorandum of Deposit of Title Deeds. Even in the absence of any such Memorandum a written document, Equitable Mortgage is created when title deeds are deposited with the lender. Equitable mortgage can be effectuated only in the towns which are notified by the concerned State Governments.
The borrower takes money from the lender and keeps his/her property as a security against the loan amount taken. No legal documentation takes place but both parties sign an agreement which is signed by the notary.
There are some upsides to equitable mortgage loans. The stamp duty and other charges are comparatively low making it easy and more economical than a registered mortgage. In many Indian states, the stamp duty on an equitable mortgage is as low as 0.1 percent of the total loan amount which makes it the first choice for some home buyers in Tier III and Tier IV cities. Comparing this with other kinds of mortgages where stamp duty, registration and others charges are sometimes as high as 8% for male borrowers and 6% for female borrowers. Also, officials of HFCs and banks are exempted to appear before Registrar Office for registration or release of the Mortgage Deed. The lender returns the original deed to the borrower when the loan is completely repaid.