When I first tried to secure my home loan, I came across the term hypothecation. At the time of securing home loans I had less knowledge about how things work. So, without any hesitation I asked my bank manager what is hypothecation. He helped me understand the meaning in the simplest way possible.
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Hypothecation is a process where you agree to give certain assets for loan. In case you cannot repay the loan, the lender will seize your asset and try to recover the amount that needs to be paid.
To define hypothecation, I will remind you about the example of a mortgage when we take home loans.
Hypothecation is the way to agree to use an asset as collateral in exchange for a home loan.
You cannot avail of hypothecation in every type of lending. For example, if you secure a personal loan or apply for a new credit card you cannot get hypothecation. Hypothecation is only applicable for secured loans such as car loans, home loans etc.
Where is hypothecation applicable?
Hypothecation is applicable when you are investing. This is a little bit different from mortgages. If you are purchasing on margin or sell short, you must sell the securities if there is a margin call.
In auto loans such as car, motorcycle, RV there is hypothecation.
Home loans
Business loans.
Be it a buyer or a lender, there is always risk involved when it comes to securing home loans. Using assets for a loan is a decent way to repay your debt and be on track.
This is what is hypothecation in a nutshell. I hope you find this informative.
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What is hypothecation?
Sweta
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2022-05-13T11:29:45+00:00 2022-05-13T12:11:05+00:00Comment
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