A hypothecation agreement is an agreement between a lender and borrower where the borrower pledges assets as collateral on a loan, however, the lender does not take possession of the collateral. The hypothecation agreement applies to mortgages of a property. When the borrower pledges the house or any property as collateral for payment of the mortgage he hypothecates the property. The borrower hypothecates the mortgage to borrow against the value of the property and in both situations, the position of the property remains with the borrower, however, the right to take possession if the borrower does not service the debt, or repays the debt remains with the lender.

Even in trading, the hypothecation agreement takes place. The investor borrows money to purchase securities. The broker may take the security which the investor home if the debt Is not repaid or service.

Hypothecation is different from pledge and mortgage. Hypothecation in many ways similar to pledge as they both create a charge on movable assets there are still some differences. The position of the sets remains with the borrower in hypothecation but the position of the asset or property remains with the lenders when the asset has been pledged, gold loan and vehicle loan are examples of pledge and hypothecation respectively. In both cases of mortgage and hypothecation, the position remains with the borrower, however, hypothecation is for movable assets while mortgages are usually for non-movable assets. Home loans and wiper loan are common examples of mortgage and hypothecation respectively.

Hypothecation can also be done for stocks and investments and it is a common practice in stock trading or margin lending. The buyer places his existing shares on collateral with the brokerage firm after buying the shares on margin and shares can be sold by the brokerage firm if the buyer falls under margin call. The value of the security that has been bought decreases more than a certain limit in a margin call. The account value also reduces beyond a certain limit when the margin call is received.

A hypothecation agreement or hypothecation deed contains standard features and rules. The agreement covers definition, inception rule, insurance, security details mark for hypothecation, rights and remedies of each party, insurance proceeds, see realization, jurisdiction prevailing, marking of assets, the liability of each party, Jurisdiction etcetera. this is the basis of a deed and the parties have to add her to the agreement. Both the parties to the agreement are responsible for abiding by the terms and conditions they have mentioned in the hypothecation agreement.
There are many benefits of hypothecation to borrowers, Such as small loans, ownership, and low-interest rate.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.