Home Loan vs. Mortgage: What’s the Real Difference?

Buying your first home can be a whirlwind of weekend inspections, taking a stab in the dark at how much you can borrow like you're choosing Lotto numbers and let’s be honest, trying to decode a whole new home loan and mortgage language. Two words you’ll hear constantly throughout this process though, are home loan and mortgage.

Most people use them as if they are one and the same, but there is a difference!

The Cheats Version: Debt vs. Security

Basically speaking, the terms can be defined as the following:

• Home Loan: This is the debt. It’s the actual money you’ve borrowed to buy the property.

• Mortgage: This is the security. It’s the legal document that gives the lender a right to your property if you stop paying the loan.

Think of it like this: The home loan is the agreement to pay back the cash to the lender and the mortgage is the insurance policy for the bank.

1. What is a Home Loan? (The Money)

When you find that perfect place, you likely won't have the full purchase price sitting in your savings account, so you need a lender to bridge the gap.

The home loan or loan agreement (or contract) refers to the specific financial product you choose. It covers things like:

• The Principal: The total amount you borrowed.

• The Interest Rate: The fee the bank charges you for the privilege of using their money.

• The Term: How long you have to pay it back (usually 25 or 30 years).

• The Features: Things like redraw facilities or offset accounts.

2. What is a Mortgage? (The Legal Stuff)

Technically, you don't "get" a mortgage, you give a mortgage to the lender.

The mortgage is a separate legal agreement, separate from the loan contract, registered on the title of your property with the relevant state or territory's land titles office. It’s the lender’s way of saying, "your property ownership is conditional upon us receiving your repayment, but if you chose not to pay us, this house is our security and we can claim ownership." Once you’ve paid off every cent of your home loan, the mortgage can then be "discharged." The lender removes their claim and the property is yours!.

Why the Distinction Matters

You might be wondering, "How does this actually impact me?". Understanding this distinction helps you realise that while you "own" the home and need to make repayments on it, the lender has a legal interest in it until that final payment is made. This is also why you need their permission to do things like major structural renovations or selling the property.

Its also important for you to maintain the building to a decent standard and continue to take out building insurance for the property, to ensure that the lenders security is protected.

Working with a Mortgage Broker in Perth

When you’re looking for a property in the Perth market, it's true, the jargon can at times seem confusing and maybe a little overwhelming. But this is where a Mortgage Broker becomes your best friend!

A Perth-based broker doesn't just find you a lender and loan product; they help you structure your home loan in a way that works best for you. They can explain:

• How much you can realistically borrow (The Loan).

• What your general obligations are to the bank (The Mortgage).

• And finally, they can explain how they ease the navigation of the whole home loan process, from packaging up and submitting the loan application on your behalf, through to settlement and beyond. So all you really have to worry about is when you will be able to crack that first bottle of celebratory wine!

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Next Steps for Home Buyers

Before you start signing offers, it’s worth getting a trusted professional in your corner. If you're ready to move from "searching" to "buying," your first stop should be to talk to me!

Reach out today for a chat about your options and let's see how much you could borrow for your dream home!