In simple language, a collateral mortgage may be described as a loan sanctioned against a security of a written note of liability, also known as a promissory note that is again secured by a mortgage listed against any real estate property. It is important to note that the amount taken on loan through a collateral mortgage may be utilized for any function apart from purchasing the property against which the loan has been granted. For instance, the money obtained in a collateral mortgage may be used for starting a business project, buying real estate for spending vacations, renovation of your home or even buying a vehicle. In the event of the mortgagor becoming a defaulter, the lender is entitled to initiate legal or other action on the basis of the promissory note as well as the secondary property against which the mortgage was sanctioned.
In addition to the promissory notes, lenders many ask for a collateral mortgage (a secondary security) or other possessions as a guarantee while granting a collateral mortgage. While it is relatively easy for an individual to obtain a collateral mortgage, succeeding buyers do not normally take this for granted. It is pertinent to mention here that collateral mortgages are like any other agreement for loan against security and are listed in the land registration or land deed offices. People may also arrange collateral mortgage on a leased property, but only on the condition that the leasehold deed evidently mentions leasehold interest and the period for which the property has been given on lease. In addition, it is essential to register the leasehold interest on the property with the appropriate office.