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Updated on July 18, 2023

A mortgage refers to the process of transferring a legal or equitable interest in a freehold or leasehold property to a lender as collateral for a loan. This arrangement includes provisions for the property’s redemption upon full repayment of the loan. In case the borrower defaults on the loan, the lender, also known as the mortgagee, possesses certain powers to recover the outstanding debt. It’s important to note that a mortgage represents a type of land charge and can be categorized as either legal or equitable.

Understanding Mortgage in detail

When a mortgage is established, the borrower, referred to as the mortgagor, transfers the property’s ownership rights or equitable interest to the mortgagee. This transfer serves as security for the loan, providing assurance to the lender that they can recover their funds by selling the property if the borrower fails to fulfill their repayment obligations.

A mortgage can be legal or equitable. A legal mortgage is registered with the land registry, providing the mortgagee with legal rights and remedies. An equitable mortgage is not formally registered but is based on equitable principles, granting the mortgagee certain rights and protections. While an equitable mortgage may lack legal recognition, it still offers security to the lender.

What is the impact of a borrower’s default?

In the event of a default by the borrower, the mortgagee has the right to initiate foreclosure proceedings. This means that the lender can take legal action to recover the outstanding debt by selling the property through a public auction or private sale. The proceeds from the sale are used to repay the loan, and any surplus is returned to the borrower.