Hypothecation is what it’s called when a borrower pledges collateral as a means of securing a debt. The borrower retains ownership of the collateral but it is hypothetically under the control of the creditor who can seize possession of the collateral if the borrower defaults.
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If you own a house and have a mortgage, you have hypothecated it to your mortgage company, for example. This means that you still own it, but in the event of a default, your bank or your mortgage company (the creditor) can take ownership and do what it wishes.
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“Re hypothecation” varies slightly when it is applied in the financial markets. For example, if you put a buck in your checking account and the bank has to keep 10% of that in reserve, it can loan out $0.90. But then, if somebody else deposits $0.90, the bank can loan out $0.81 cents or 90% of the total assets on deposit.
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Since the practice of hypothecation provides security to the lender because of the collateral pledged by the borrower, the lender generally offers the loan at a lower rate of interest than on an unsecured loan.
http://www.investopedia.com/terms/h/hypothecation.asp
Tweet. Hypothecation is a pledge of property as collateral for a debt when the debtor holds back the right of possession of the collateral. The debtor retains legal title to the collateral but grants the lender a lien on it. This is the case in many security interest situations, like home mortgages and car loans. Terms like hypothecation are no longer used in Article 9 of the U.C.C.–the term “security interest” is now used.
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DEFINITION of 'Hypothecation'. The established practice of a borrower pledging an asset as collateral for a loan, while retaining ownership of the assets and enjoying the benefits therefrom.
http://www.investopedia.com/terms/h/hypothecation.asp
When I talk to people about the financial crisis of 2008 in regards to the out of control leveraging that many of the country’s largest banks partook in, most consumers look at me with a confused look. I think many of them would rather just keep going to the ATM and be content that it spits out cash at them.
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With hypothecation, the lender has the right to seize the asset if the borrower cannot service the loan as stipulated by the terms in the loan agreement. Hypothecation also refers to securities in a margin account that an investor uses as collateral to borrow funds from a brokerage. Next Up.
http://www.investopedia.com/terms/h/hypothecation.asp
From Attorney Ortiz: We have been helping consumers and small businesses in Massachusetts successfully navigate through the bankruptcy process since 2002. We offer free initial consultations and payment plans. Call us at 617-716-0282 to discuss your debt relief options.
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Mortgages and margin loans are the most common examples of hypothecation. While it enables the borrower to obtain loans on more favorable terms than unsecured loans, the borrower risks losing the asset if prices plunge precipitously and the loan cannot be serviced.
http://www.investopedia.com/terms/h/hypothecation.asp
what does hypothecation mean
Hypothecation is the established practice of a borrower pledging an asset as collateral for a loan, while retaining ownership of the assets and enjoying the benefits therefrom. Hypothecation means the practice of a borrower pledging an asset as collateral for a loan, while retaining ownership of the assets and enjoying the benefits therefrom.