Understanding the Different Kinds of Real Estate Mortgage in the Philippines

Real estate is one of the most valuable investments a person can own. In the Philippines, many individuals and businesses use properties as security for loans through what is called a Real Estate Mortgage (REM). Whether for purchasing a house, expanding a business, or obtaining financing, mortgages play a major role in the real estate industry.

But did you know that there are different kinds of real estate mortgages under Philippine law?

In this blog, we will discuss the common types of real estate mortgage in the Philippines and why they are important for property owners, buyers, investors, and borrowers.

What is a Real Estate Mortgage?

A real estate mortgage is a legal agreement where a property owner uses a real property — such as land, a house, condominium unit, or commercial building — as collateral for a loan or obligation.

Under Philippine law, the borrower remains the owner of the property unless they fail to pay the loan, which may result in foreclosure.

Real estate mortgages are governed mainly by the Civil Code of the Philippines and related banking regulations.

Different Kinds of Real Estate Mortgage in the Philippines

1. Voluntary Real Estate Mortgage

The most common type of mortgage is the voluntary mortgage. This happens when the property owner willingly agrees to mortgage the property to a lender or bank in exchange for a loan.

This type is commonly used for:

• Housing loans
• Business loans
• Property financing
• Bank credit facilities

The mortgage contract must be:

• In writing
• Notarized
• Registered with the Registry of Deeds

Even if the property is mortgaged, the owner can still possess and use the property while paying the loan.

2. Legal Mortgage

A legal mortgage is created by operation of law rather than by agreement of the parties.

In this situation, the law itself recognizes a mortgage to secure certain obligations or claims.

Examples may include:

• Government tax claims
• Certain statutory liens

Although less common in regular real estate transactions, legal mortgages are recognized under Philippine laws.

3. Equitable Mortgage

An equitable mortgage happens when a transaction appears to be a sale but is actually intended only as security for a loan.

This is important because some lenders may attempt to disguise a loan agreement as an absolute sale to avoid mortgage laws. Philippine courts carefully examine the true intention of the parties.

Signs of an equitable mortgage include:

• The seller remains in possession of the property
• The selling price is unusually low
• The owner continues paying property taxes
• The buyer allows the seller to repurchase the property

Philippine law protects borrowers from unfair arrangements by treating these transactions as mortgages instead of sales.

4. Conventional Mortgage

A conventional mortgage refers to a mortgage created through mutual agreement between the borrower and lender.

This is similar to a voluntary mortgage and is commonly used in:

• Bank financing
• Home loans
• Commercial property loans

Most residential and commercial property loans in the Philippines fall under this category.

5. Open Mortgage

An open mortgage allows the same property to secure future loans or additional obligations beyond the original loan amount.

For example, a borrower may mortgage a commercial property for an initial loan, and the same mortgage may also secure future credit extensions from the bank.

This setup is commonly used in:

• Business financing
• Credit lines
• Corporate loans

6. Closed Mortgage

A closed mortgage secures only one specific obligation or loan amount.

Once the borrower fully pays the debt:

• The mortgage is cancelled
• The property is released from the encumbrance

If the borrower wants another loan, a new mortgage agreement is usually required.

Foreclosure of Mortgage in the Philippines

If the borrower fails to pay the loan, the lender may foreclose the property.

There are two kinds of foreclosure:

Judicial Foreclosure

This process goes through the court system.

Extrajudicial Foreclosure

This happens outside the court if the mortgage contract contains a special power of sale clause.

Extrajudicial foreclosure is governed by Act No. 3135.

Why Understanding Real Estate Mortgage Matters

Knowing the different types of mortgage is important because it helps:

• Property buyers understand financing
• Investors protect their assets
• Borrowers avoid legal problems
• Sellers recognize unfair transactions
• Businesses secure proper financing

A real estate mortgage is more than just a loan document — it is a legal agreement that affects ownership rights, financial obligations, and property security.