Pledges and mortgages are common methods of securing loans or obligations. They allow borrowers to use assets as collateral while offering lenders reassurance. Here, we explore different types of pledges and mortgages, helping you make informed decisions.

1. Pledges

A pledge involves offering movable property as collateral to secure repayment of a loan. The ownership of the pledged asset remains with the borrower, but the lender has a right to sell the asset if the borrower defaults.

Types of Pledges:

• Simple Pledge: The borrower retains ownership and possession of the pledged asset, but the lender has the right to take possession in case of default.
• Pawn Pledge: The borrower physically hands over movable assets (jewelry, vehicles, etc.) to the lender or a pawnbroker, who retains possession until the loan is repaid.
• Hypothecation: Here, the borrower retains possession of the asset (like a vehicle), but the lender retains a lien over it. Common in auto loans.

2. Mortgages

A mortgage is a method of securing a loan using immovable property, such as real estate. The borrower retains possession and ownership of the property while using it as collateral.

Types of Mortgages:

• Simple Mortgage: The borrower transfers the right to sell the property to the lender if they fail to repay the loan, but possession remains with the borrower.
• Equitable Mortgage: Also called a mortgage by deposit of title deeds. The borrower hands over the title deed to the lender as security but retains ownership and possession.
• English Mortgage: The borrower transfers ownership to the lender with a condition that it will be returned upon repayment. The borrower still retains possession.
• Usufructuary Mortgage: The lender is allowed to take possession of the property and enjoy the income (rent) from it until the loan is repaid.
• Reverse Mortgage: Aimed at senior citizens, this allows homeowners to convert part of their home’s equity into cash while still living in the house. The loan is repaid when the property is sold.

Key Differences Between Pledges and Mortgages

• Movable vs. Immovable Assets: Pledges deal with movable assets (e.g., jewelry), while mortgages involve immovable property (e.g., houses).
• Possession: In a pledge, the lender may take possession of the asset, while in most mortgages, the borrower retains possession.
• Legal Process: Mortgages tend to involve more formal legal documentation compared to pledges.