# Chattel Mortgage: Definition, Types, and Examples

## What Is a Chattel Mortgage?

A chattel mortgage is a loan to purchase movable personal property, such as a [manufactured home](https://www.investopedia.com/articles/personal-finance/112814/fha-loans-option-manufactured-homes-too.asp) or construction equipment. The property, or chattel, secures the loan, and the [lender holds an ownership interest](https://www.investopedia.com/terms/c/conditional-sales-agreement.asp).

Chattel loans are commonly referred to as security agreements. The terms “personal property security,” “lien on personal property,” or even “[movable hypothecation](https://www.investopedia.com/terms/h/hypothecation.asp)” are other synonyms for a chattel mortgage.

### Key Takeaways

*   A chattel mortgage is a loan to purchase movable personal property, such as construction equipment.
*   Mobile or manufactured homes, where the homeowner buys the residential unit but not the land it occupies, are financed with chattel mortgages.
*   Chattel mortgages tend to carry higher interest rates and have fewer consumer protections than regular mortgages.

## Types of Chattel Mortgages

Borrowers secure chattel mortgages to purchase moveable property. These loans tend to have shorter terms than regular mortgages. If a borrower [defaults](https://www.investopedia.com/terms/d/default2.asp) on a chattel mortgage, the creditor or lender can take possession of the financed property and sell it to pay off the loan.

### Mobile/Manufactured Home Loans

Chattel mortgages finance mobile or manufactured homes on leased land. Borrowers cannot opt for a traditional mortgage since the land does not belong to the homeowner. Instead, the mobile or manufactured home is considered “personal movable property” and security for a chattel mortgage. The financing arrangement remains in effect even if the mobile home is moved to a different location.

The [U.S. Department of Housing and Urban Development (HUD)](https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp), the [U.S. Department of Veterans Affairs (VA)](https://www.investopedia.com/terms/u/us-department-veterans-affairs.asp), and the U.S. Department of Agriculture’s [Rural Housing Service](https://www.investopedia.com/terms/r/rhs.asp) all have programs to guarantee manufactured home loans issued by approved private lenders to eligible borrowers. A HUD entity, the [Federal Housing Administration (FHA)](https://www.investopedia.com/terms/f/fhaloan.asp) Manufactured Home Loan Insurance program, guarantees loans for manufactured homes without land.

### Equipment Loans

Businesses use chattel mortgages to purchase new or used heavy equipment for construction, farming, or other purposes. A chattel mortgage allows the buyer to use the equipment while the [lender](https://www.investopedia.com/how-to-find-the-best-mortgage-lender-5194993) retains an ownership interest. If the buyer defaults, the lender can repossess the equipment and sell it to pay off the loan balance.

The U.S. [Small Business Administration](https://www.investopedia.com/terms/s/small-business-administration.asp) provides low-cost financing for business-related equipment. Like other government agencies, it doesn’t issue loans but guarantees eligible loans issued by an approved list of commercial lenders. Its [504 loans](https://www.investopedia.com/sba-504-vs-7a-loans-8769055) provide funding for long-term machinery and equipment purchases.  

## Chattel Mortgage vs. Traditional Mortgage

A chattel mortgage differs from a traditional one in that the lender owns the property until the borrower fully pays the loan. With a regular mortgage, the lender isn’t the owner but holds a [lien](https://www.investopedia.com/terms/p/property-lien.asp) on the property, allowing it to take possession in the event of a default. With a chattel mortgage, ownership transfers to the buyer at the end of the mortgage term, assuming all the payments have been made.

Chattel mortgages tend to carry higher interest rates and have fewer consumer protections than regular mortgages. They also have shorter terms, so monthly payments may be higher.

## Examples of Chattel Loans

Vehicles, airplanes, boats, farm equipment, and manufactured homes are common examples of assets often financed with a chattel loan. Approximately 42% of the loans used to purchase manufactured homes are chattel loans, according to the [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp). Chattel loans have specific rules, which vary according to the property and state or federal law.

In Florida, chattel home loans must be listed in a public registry so that third parties can be aware of them before entering into financing agreements with potential borrowers who want to put up the property as security for another loan. For security agreements associated with aircraft, chattel mortgages must be recorded with the Aircraft Registration Branch of the Federal Aviation Administration.

> **Important**
>
> Mortgages on personal property, such as chattel loans, typically have higher interest rates than traditional mortgages and shorter terms.

## Where Can Borrowers Get a Chattel Loan?

Chattel loans are offered in person at lending institutions and through online lenders, some of which specialize in a particular type of property, [such as mobile homes](https://www.investopedia.com/the-best-mobile-home-loans-11751689), aircraft, or construction equipment.

## How Much Down Payment Is Required for a Chattel Loan?

That can depend on the loan, the lender, and your credit score. With the FHA’s Title I loans, for example, borrowers with a credit score above 500 are required to make at least a 5% down payment, while those with lower scores must put down at least 10%.

## Is Interest on a Chattel Mortgage Tax Deductible?

The interest paid on a chattel mortgage may be deductible, just like interest paid on a conventional mortgage. When financing a manufactured or modular home fixed to the ground, borrowers may also be able to take advantage of property tax deductions.

## The Bottom Line

A chattel mortgage is a loan to purchase movable personal property, such as construction equipment or a mobile home. Chattel mortgages often carry higher interest rates and have fewer consumer protections than traditional mortgages. If a borrower defaults on a chattel mortgage, the lender can repossess the property or equipment.

> **Article Sources**
>
> 1.  U.S. Department of Veteran Affairs. "[VA Home Loan Guaranty Buyer’s Guide](https://www.benefits.va.gov/HOMELOANS/documents/docs/VA_Buyers_Guide.pdf)," Page 14.
>     
> 2.  Rural Housing Service. "[Single Family Home Loan Guarantees](https://www.rd.usda.gov/sites/default/files/fact-sheet/508_RD_FS_RHS_SFHGLP.pdf)," Page 1.
>     
> 3.  U.S. Department of Housing and Urban Development. “[Financing Manufactured (Mobile) Homes](https://www.hud.gov/program_offices/housing/sfh/title/repair).”
>     
> 4.  U.S. Small Business Administration. “[504 Loans](https://www.sba.gov/funding-programs/loans/504-loans).”
>     
> 5.  Consumer Financial Protection Bureau. “[Manufactured Housing Loan Borrowers Face Higher Interest Rates, Risks, and Barriers to Credit, New CFPB Report Finds](https://www.consumerfinance.gov/about-us/newsroom/manufactured-housing-loan-borrowers-face-higher-interest-rates-risks-and-barriers-to-credit/).”
>     
> 6.  The Florida Senate. "[Chapter 698, Chattel Mortgages](https://www.flsenate.gov/Laws/Statutes/2019/Chapter698/All)."
>     
> 7.  Federal Aviation Administration. "[Aircraft Registration, Record a Security Agreement/Chattel Mortgage](https://www.faa.gov/licenses_certificates/aircraft_certification/aircraft_registry/record_security_agreement/)."
>     
> 8.  Federal Deposit Insurance Corporation. “[Manufactured Home Loan Insurance](https://www.fdic.gov/resources/bankers/affordable-mortgage-lending-center/guide/part-1-docs/manufactured-home-loan-insurance.pdf),” Page 2.