A mortgage or a loan? What’s the difference?
The terms mortgage and loan are often used to describe the same thing, but are they the same?
The short answer is no.
A mortgage and a loan are different beasts, though closely related. When you apply to a bank or lender for a home loan, you are asking for exactly that, a loan. Assuming your bank says yes, they give you an amount of money to buy a home because you have agreed to pay it back by regular payments.
Now banks being banks, simply don’t trust you will pay the loan back as promised. Experience over hundreds if not thousands of years, shows that this doesn’t always happen. They want a fall back position. In bank lingo it’s called security. They want to reduce the risk of loosing the money loaned to you.
That’s where a mortgage comes into play.
The Macquarie dictionary defines a mortgage as: ‘ a security by way of conveyance or assignment of property securing the payment of a debt or the performance of an obligation where the property is redeemable upon payment or performance’.
In simple terms your bank takes your title deed, which is your proof of ownership of the property at settlement and holds the deed as security until you have repaid the loan. Once the loan has been fully repaid you can ask the bank to remove their mortgage which is registered on your title and have the title deed returned to you ( to keep in a safe place).
If you stop making repayments, under certain conditions your bank can sell your property and get back the money you still owe. Any left over money will come to you.
In summary when you borrow money to buy a home, you get a home loan from the bank and give the bank your ok to place a mortgage on the title of your home until you pay back the whole loan. In a way you are slowly buying your home from the bank.
Still confused? Give me a call. Paul Gilhooly 0410 520 398 or paul@halogenhomeloans.com.au
Leave a Reply