SARAVANABABU P (MANAGER) 05 June 2020

what is difference between paripasu charge & second charge over movable & immovable securities?

1 Replies

Varnita Ojha 05 June 2020

hello sir/ ma'am,

"Pari Passu” charge means that when borrower company goes into dissolution, the assets over which the charge has been created will be distributed in proportion to the creditors' (lenders) respective holdings.

The Pari-Passu Charge provides an equivalent right to the share of specified assets of a borrowing company to all the lenders under the arrangements. In the event of default of repayment from the borrower the joint lenders may decide to dispose-off the security held by them in order to recover their dues. The realization proceeds of the assets disposed-off would be shared among joint lenders in proportion to the balances outstanding in their accounts.

Large borrowers are financed by multiple banks in the consortium or under joint lending arrangements (JLA). Banks that participate in the Joint Lending Program takes the share of the certain percentage of the total amount of finance under uniforms terms and conditions including interest.

Pari-passu charge arisen when more than one lender has a charge like a mortgage on the same property though created at different times, if the lenders agree among themselves, their charge/mortgage will rank equal in enforcement. This term is used to describe a similar ranking of securities or lenders when a new issue of shares is made, they could be said to rank pari passu. A common agreement between joint lenders is a pari passu clause under which, in the event of a shortfall, they agree to share equally whatever is available.

A second charge mortgage allows you to use any equity you have in your home as security against another loan. It means you will have two mortgages on your home. Equity is the percentage of your property owned outright by you, which is the value of the home minus any mortgage owed on it.When most people purchase a home or property, they take out a home loan from a lending institution that uses the property as collateral. This home loan is called a mortgage, or more specifically, a first mortgage.The borrower is required to repay the loan in monthly installments made up of a portion of the principal amount and interest payments. Over time, as the homeowner makes good on his monthly payments, the value of the home also appreciates economically.

The difference between the current market value of the home and any remaining mortgage payments is called home equity.A homeowner may decide to borrow against his home equity to fund other projects or expenditures. The loan he takes out against his home equity is known as a second mortgage, as he already has an outstanding first mortgage. The second mortgage is a lump sum of payment made out to the borrower at the beginning of the loan.Like first mortgages, second mortgages must be repaid over a specified term at a fixed or variable interest rate, depending on the loan agreement signed with the lender. The loan must be paid off first before the borrower can take on another mortgage against his home equity.