What is a chattel mortgage?

Definition of Chattel Mortgage

A chattel mortgage is a mortgage loan where movable personal property, known in legal terms as chattel, is used to secure the loan. It works similar to a conventional mortgage, which is a loan secured by a lien on real property, but instead of using the property, the debt is secured by personal property.

Why is this term important?

Chattel includes all movable property that is not directly attached to a real property. Chattel can be personal belongings in the home that is mortgaged, or they can be personal belongings housed outside of the mortgaged property. Chattel includes any personal belongings, but for a chattel mortgage, these items need to be considered high enough in value as to secure the mortgage debt.

Examples of term

If a purchaser was unable to obtain a mortgage for a rental property purchase through conventional means, this purchaser could offer up their business equipment or vehicles as part of a chattel mortgage agreement, whereby the lender would put a lien on these items before providing funds for the purchase of the rental property.