Chattel Mortgage

What Does Chattel Mortgage Mean?

A chattel mortgage is a loan arrangement where the borrower temporarily transfers ownership of a property to the lender as collateral for the loan. Once the loan is fully repaid, ownership of the property reverts to the borrower.

Chattel mortgages are commonly used in automobile sales.

Insuranceopedia Explains Chattel Mortgage

As the name suggests, chattel mortgages involve movable property, such as cars or cash, rather than real property like land or buildings.

What sets chattel mortgages apart from traditional loans is the temporary transfer of ownership. In a chattel mortgage, the lender holds ownership until the loan is repaid in full, whereas in traditional loans, the borrower retains ownership and only risks losing it if they default on the loan.

For example, when purchasing an automobile through a chattel mortgage, the lender provides the funds for the purchase. However, ownership of the car remains with the lender until the borrower fully repays the loan. Because the lender holds title to the car during the loan period, they almost always require the borrower to carry full coverage car insurance to protect their financial interest in the vehicle. If the car is totaled while the chattel mortgage is still active, the borrower can end up owing more on the loan than the insurer pays out for the car’s depreciated value, which is the situation GAP insurance is designed to cover.