Virtually all home loans are secured with a mortgage, so its forgivable that semantically, they have become synonymous with one another. For the nitpicky though, there is a distinction between the two.

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.

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.

What’s the difference?

Typically, borrowing money to purchase property 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.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
$2,408
Principal & Interest
Variable
$0
$530
90%
Featured 4.6 Star Customer Ratings
  • No monthly or ongoing fees
  • Unlimited free redraw
  • No application fee
5.99% p.a.
5.90% p.a.
$2,396
Principal & Interest
Variable
$0
$0
80%
Featured Apply In Minutes
  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
6.14% p.a.
6.16% p.a.
$2,434
Principal & Interest
Variable
$0
$250
60%
Featured Unlimited Redraws
  • No annual fees - None!
  • Get fast pre-approval
  • Unlimited additional repayments free of charge
  • Redraw freely - Access your additional payments when you need them
  • Home loan specialists available today
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Picture by Binyamin Mellish





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