What is the difference between a mortgage and a home loan?

Most people use the words interchangeably, which can lead to some confusion.

What is a mortgage?

A mortgage is a legal agreement that conveys the conditional right of ownership on an asset or property by its owner (the mortgagor) to a lender (the mortgagee) as security for a loan.

The lender’s security interest is recorded in the register of title documents to make it public information and is voided when the loan is repaid in full. The lender could charge you a fee to discharge the mortgage once it has been paid in full

Among the many clauses in the mortgage document, you will more than likely see a clause referring to a priority dum. A priority sum is always for more than the value of the home loan (often one and a half times the value of the home loan). The reason for this is firstly to protect the lender in the event of default on the mortgage. With outstanding fees and interest, the lender could be owed more than the original sum borrowed.

Another reason that benefits the borrower is in the event the borrower wishes later to increase their borrowing, the priority sum registered will not need to be increased. This saves time and additional costs for you as the borrower.

The lender would more than likely require you to first seek approval before using your property as security for a loan from another lender.

Mortgage documents tend to be generic, but your solicitor will take you through this to ensure that you understand your all your obligations, such as ensuring the property is fully insured and that the property is well maintained and land rates are paid, as examples.

What is a home loan?

A Mortgage (Home Loan) is a loan from a bank or non-bank lender given to the borrower to be able to purchase the property. A lender can approve a mortgage once certain criteria are met and would be dependent on the lender’s risk appetite and credit policies. You have a responsibility as the borrower to make the repayments on the home loan.

If you are incapable of repaying your home loan, the lender is entitled to take possession of the property and can choose to sell it, to clear the debt associated with it.