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Related to Hypothecation: hypothecation agreement


In banking, refers to the commitment of property to secure a loan.

In securities, refers to the commitment of securities to serve as collateral for margin loans at the broker-dealer firm.


To pledge an asset as collateral on a loan without the lender taking possession of the collateral. It especially applies to mortgages: the borrower hypothecates when he/she pledges the house as collateral for payment of the mortgage, or he/she may hypothecate the mortgage in order to borrow against the value of the house. In both situations the borrower retains the house, but the lender has the right to take possession if the borrower does not service the debt. Hypothecation also occurs in trading: a broker will allow an investor to borrow money to purchase securities with those securities as collateral. The investor owns the securities but the broker may take them if the debt is not serviced, or if the value of the securities falls below a certain level. See also: Foreclosure, Margin account.


Hypothecation means pledging an asset as collateral for a loan.

If you use a margin account to buy on margin or sell short, for example, you pledge securities (stocks, bonds, or other financial instruments) as collateral for the debt. If the brokerage firm issues a margin call that you don't meet, it can sell those securities to cover its losses.

Similarly, if you arrange a mortgage on your home, you give the lender the right to sell your home if you fail to meet your obligation to make mortgage payments.

Hypothecation may make it easier for you to secure a loan, but you do run the risk of losing the asset if for some reason you default on your obligation to repay according the terms of the agreement.

References in periodicals archive ?
This hypothecation further increases the legitimacy of the tax in the eyes of those who must pay it.
Prohibit hypothecation (pledging interest as collateral for a loan).
Finley observes that "when we study land and credit in Athens, the normal link between the two all through the classical period, hypothecation, is an institution limited largely to men of property acting in non-economic capacities.
Local hypothecation would give comfort to those in areas that are likely to generate the most PGS, but there is arguably little point in creating and collecting a national tax only to give it back in exact proportion to how and where it arose.
However, the other aspect of recent developments has been a greater targeting of resources on the government's priorities through hypothecation and ring-fencing--which in local government has meant education and social services (Midwinter 2002).
This was well understood in the Civil Law, by which there might be a pledge with possession, and a Hypothecation without possession, and by which in either case the right travelled with the thing into whosesoever possession it came.
But pure hypothecation, which is this linking of one tax to perhaps the fate or fortune of the economic cycle, is really not acceptable.
It is far too early to make such a judgement; indeed, we are not yet clear about the whole range of influences upon this government: besides, as expected, the government have rejected the idea of hypothecation.
The guarantee scheme alongwith other security arrangement like mortgages, hypothecation, and guarantors will considerably reduce the risks for the banks.
This hypothecation, following the earmarking of the [pound]5.
In effect, it is a form of regulated tax hypothecation.