- Though often used interchangeably, mortgage and home loan don't mean the same thing
- Any loan taken to purchase property is a home loan
- A mortgage refers to the agreement between the mortgagor and the mortgagee that the property can be repossessed if the borrower defaults.
Virtually all home loans are secured with a mortgage, so it's forgivable that semantically they have become synonymous. For the nitpicky though, there is a distinction between the two.
What is a home loan?
A home loan is simply any loan taken out to purchase property. The vast majority of home loans are secured with a mortgage, but in theory it would be possible to take out an unsecured loan to buy property, which would still be a home loan. In this case though, should the borrower default on the loan, the property might still be an asset included in formal debt resolution arrangements like insolvency or bankruptcy. The borrower might need to sell the property to honour the loan, or it might be foreclosed upon by the bank.
A home loan is a legally binding contract, but does not need to be registered with any public authority
What is a mortgage?
The word 'mortgage' doesn't refer to the loan itself, but the agreement between the mortgage holder (the mortgagor) and the lender (the mortgagee) that ownership of the property can transfer to the lender if the borrower defaults on the loan. Once the loan is repaid in full, the mortgage is discharged, and the property becomes unconditionally owned by the borrower. If you hear someone talking about their mortgage repayments, you can smugly jump in and correct them: they are repaying their home loan, not their mortgage.
The mortgage agreement is separate from the loan contract and needs to be registered with the relevant state or territory land titles office.
What’s the difference?
Borrowing money to purchase property typically involves both a home loan and mortgage agreement. The home loan is the agreement that your lender will give you a certain amount of money, to be paid back over the loan term at an agreed interest rate (with a variable or fixed rate). Meanwhile, the mortgage is a separate agreement that your ownership of the property is conditional upon these repayments. If you default, the mortgage means that the lender has the right to reclaim ownership of the property.
Most of the time these go hand in hand so this distinction isn't important. Understandably, there aren't many lenders happy to give out a home loan worth hundreds of thousands of dollars without a mortgage guarantee that protects them should the borrower default. However, it is possible to borrow money for property without a mortgage.
Lets say you are several years into a home loan with a mortgage, and have built up significant equity in the property. If you decide to get a loan to make renovations, you could borrow against that equity, which would in effect extend your mortgage.
Alternatively though, you might decide to take out a separate, unsecured loan to cover the construction costs. This would mean that if you default on this amount, the bank doesn't have the automatic right to repossess the property. However, several formal debt recovery processes might necessitate forfeiting the property anyway in order to pay your creditors. This second option would also typically involve a significantly higher interest bill, since rates on unsecured personal loans tend to be much higher than mortgage-backed home loans.
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 5.95% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
