What is a Land Mortgage
When a person goes for a home loan and builds a home by availing the loan, then the financer keeps the newly built or bought house as mortgage. When the person repays the loan back fully, the financer releases the home and that is transferred in to the name of the person. Same is the case with auto loan also. When a person buys any vehicle by availing finance, then the vehicle is hypothecated to the financer, till the person pays back the loan completely.
Land mortgage is more or less same to the home loan or auto loan. In case of land mortgage, the owner of the land gives his owned piece of land to any financer in exchange of a loan. The financer keeps land as the mortgage and gives a certain amount to the owner of the land as a loan. The land stays hypothecated to the financer, till the owner pays the loan back to the financer.
During the period of repayment, the owner can’t sell that certain piece of land or he can’t give that land as mortgage to any other financer. However, if the land is a cultivatable one, then the real owner can cultivate on that land and all the production belongs to him. If there is a house on that land, then the real owner can stay at that house or can give the house on rent to someone else. The whole rental money belongs to the owner. He doesn’t need to share that money with the financer.
How much money the financer will give as a loan after keeping the land as a mortgage depends upon the latest value of the land. The financer will evaluate the cost of the land by any experienced evaluator and then pay a fraction of amount of the land cost as the loan to the real owner. This means, if the present cost of the land is 100, then the financer will offer an amount less than 100. The financer will determine, the maximum amount is, he can lend.
In case, the owner fails to repay the loan back, then the financer would take the full possession of the land and the land will no more belong to the owner. If the financer takes the possession of the land, then all the benefits linked to the land will be of financer’s, not of the owner. This means, the owner can no more cultivate the land or stay or rent in the house, if there is any.
At the time of repayment of the loan, the owner of the land has to pay a certain amount of interest, which has been discussed at the time of providing the loan between the owner and the financer.