Understanding Equitable Mortgages: A Guide for Filipino Borrowers

In the Philippines, real estate serves as a valuable asset for many. While traditional mortgages are common, equitable mortgages offer an alternative financing option. This blog post empowers you with a clear understanding of equitable mortgages in the Philippines, exploring their key characteristics, advantages and disadvantages, and crucial factors to consider before pursuing this type of loan.

What is an Equitable Mortgage?

An equitable mortgage arises when a borrower uses their property as security for a loan without formally transferring the legal title to the lender. Unlike a traditional mortgage, the lender holds an “equitable interest” in the property. This means the lender can potentially force the sale of the property to recover the loan amount if the borrower defaults on repayments.

Key Characteristics of Equitable Mortgages in the Philippines:

  • Informal Agreement: Equitable mortgages are often established through informal agreements, relying on written documentation like contracts or promissory notes.
  • No Legal Transfer of Title: The legal ownership of the property remains with the borrower.
  • Enforcement: In case of default, the lender may need to go through court proceedings to enforce their claim on the property, which can be a lengthy process.

Benefits of Equitable Mortgages:

  • Faster Processing: Obtaining an equitable mortgage can be quicker compared to traditional mortgages due to less stringent formalities.
  • Potentially Lower Costs: Formal mortgage fees like registration charges might be lower or absent with equitable mortgages.
  • Suitable for Special Circumstances: This type of mortgage can be helpful in situations where a formal mortgage deed cannot be executed immediately, such as when property titles are still under process.

Drawbacks of Equitable Mortgages:

  • Higher Risk for Borrowers: Since the legal title remains with the borrower, there’s a risk of the property being sold to satisfy other debts if not prioritized correctly.
  • Lower Security for Lenders: The informal nature and potentially lengthy enforcement process can make equitable mortgages less attractive to some lenders, potentially leading to higher interest rates or stricter loan terms.
  • Potential for Disputes: Relying on informal agreements can increase the risk of misunderstandings or disputes arising in the future.

Important Considerations Before Choosing an Equitable Mortgage:

  • Understand the Risks: Carefully weigh the advantages and disadvantages of equitable mortgages before entering such an agreement.
  • Formalize the Agreement: While formalities are less strict, having a well-drafted written agreement outlining the loan terms, interest rates, and repayment conditions protects both parties.
  • Seek Legal Advice: Consulting a lawyer experienced in real estate transactions can be beneficial, especially for navigating the legalities and ensuring your interests are protected.

Alternatives to Equitable Mortgages:

  • Traditional Mortgages: For a more secure and formalized option, consider a traditional mortgage with a registered bank or lending institution.
  • Home Equity Loan of Credit (HELOC): HELOCs allow you to borrow against the equity in your home with a revolving line of credit, potentially offering more flexibility than a fixed-term loan.


Equitable mortgages can be a suitable option in specific situations, but it’s crucial to understand the risks involved and take necessary precautions. By carefully considering the information presented here and consulting with a legal professional, you can make an informed decision on whether an equitable mortgage aligns with your financial goals.