What is Equitable Mortgage?

In order to answer the question ‘What Is An Equitable Mortgage’ one must understand what each of these terms means. The word ‘mortgage’ comes from the French word ‘mort’ (dead) and ‘gage’ (pledge). Basically this procedure is the transfer of title for the purpose of securing a loan. The dictionary defines ‘equity’ as the monetary value of something beyond an amounts owed on it in debiture.

What Is An Equitable Mortgage?

In an equity arrangement title is not actually conveyed but the amount of equity owned is held in trust by the lender until the borrower repays the loan. This ‘Deed of Trust’ serves as evidence of debt and protects the borrower’s interest in the property since it acts as collateral or security for the lender. Once the loan is repaid the deed is considered dissolved and equity returns to the borrower.

How An Equitable Mortgage Differs From A Legal One

In a legal arrangement the title is actually transferred to the lender until such time as the obligation is satisfied at which point title reverts back to the borrower. An equitable mortgage is an agreement entered upon by 2 parties (borrower and lender). Until the current equity agreement is satisfied, another agreement can not be entertained. In some ways this type of agreement is a risky venture since it can be sold to a 3rd party if such an equity agreement is not known to exist.

Some Reasons For Acquiring An Equitable Mortgage

An equitable mortgage uses only the part of the title actually owned rather than the whole value when calculating a fair loan amount. Many commercial entities use this type of mortgage for the purpose of buying equipment or inventory. It is interesting to note that in Canada the interest on this type of mortgage is tax exempt.

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