You might think that a home loan and a mortgage are one and the same, but the truth is, these two terms refer to entirely different things!
By understanding the difference between a home loan and a mortgage, you can get a better sense of where your money is going and how to achieve the best possible value on your property purchase.
What is a home loan? What is a mortgage? How are they different? Here’s your quick and easy guide to everything you need to know.
What is a home loan?
A home loan is the money you borrow from your lender to fund the purchase of a property.
Your home loan remains at a set amount. It is the total amount of money you have borrowed and now need to pay back in order to achieve full, outright ownership of your home.
Over the course of your loan term, which may be up to around 30 years, you’ll pay back your home loan to your lender in regular instalments, alongside the interest you owe calculated on a fixed or variable rate.
What is a mortgage?
A mortgage is a security measure taken by your lender to ensure that their finances are protected if you default on your loan and fail to make your minimum monthly repayments.
If you are unable to repay your home loan, your mortgage gives your lender the legal right to sell your property, often at a low price, to recover their financial losses.
Your mortgage exists for as long as your loan does. When you pay off the last of your home loan, your property becomes your own.
The real difference
Although the two terms are often used interchangeably, home loans and mortgages are very different!
A home loan is the money you borrow, generally up to an 80% loan-to-value ratio, to cover the cost of a property purchase you cannot afford on your own.
A mortgage is your lender’s way of guaranteeing that they won’t lose the money they lend you, even if your situation changes and you are unable to repay what you owe.
Understanding is critical
Purchasing a home can feel overwhelming, especially if you’re a first-time home buyer. There are so many terms and complexities you need to be aware of.
Understanding the process well is important. This can help you gain clarity on contractual terms and know exactly what your obligations are.
The better you understand the finer details of the home-buying journey, the more effectively you’ll be able to make informed decisions and protect your finances, now and in the future.
Fortunately, you don’t have to navigate these complexities alone. A skilled and experienced mortgage broker can guide you through the purchasing process and provide you with the information you need to approach buying the property with confidence. Find the right home loan to support your purchasing goals! Talk to the best mortgage broker Melbourne has to offer. Contact the Our Top 10 experts today!