Types Of Mortgage

Types of mortgage

There are essentially two types of legal mortgage.

Mortgage by legal charge

In a mortgage by legal charge, the debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to enable them to enforce their security, for instance by taking possession of the property or selling it.

To protect the lender, a mortgage by legal charge is usually recorded in a public register. Since mortgage debt is often the largest debt owed by the debtor, mortgage lenders run title searches of the real property to ensure that there are no mortgages already registered on the property which might have higher priority. Tax liens, in some cases, come ahead of mortgages. For this reason, if a borrower owes property tax arrears, the mortgage lender may pay them to forestall a foreclosure by the lienholder which would wipe out the mortgage.

This type of mortgage has been the usual form of mortgage in England and Wales since 1925 and, under the Land Registration Act 2002, is now the only form permitted by law.

The mortgage by legal charge is also known as standard security in Scotland.

Mortgage by demise

In a mortgage by demise, the creditor owns the mortgaged property until the loan is repaid in full ("redeemed"). This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.

This older form of legal mortgage has been less common than a mortgage by legal charge in recent years and under the Land Registration Act 2002 is no longer available in the UK.

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