What is a Mortgage?

The mortgage must be registered against the Title Deed of the owner. The mortgagee is entitled to repayment of the money lent under the mortgage, and the interest, which is also secured. If the owner, or the mortgagor, defaults on the loan by failing to meet minimum repayments on time, the mortgagee can sell the property and use the proceeds of the sale to regain the money they have lent. They can also require the owner to pay for mortgage insurance (if the deposit was less than 20% of the purchase price of the property), appoint a receiver of the income of the property, and receive the proceeds of any produce sold (important for farming properties).

Mortgage insurance is used to insure the bank or other lending institution in case the borrower is unable to repay the loan. Even though you are paying the premium, you are not insured at all. The premium is usually a one-off payment at the start of the loan, and subsequent payments are not usually required. Mortgage insurance premiums can vary between lenders 0.3-1.9% of the loan amount depending on the type of the loan, the amount of the loan, and the proportion of the purchase price borrowed.

Mortgages can sometimes be applied for online, but this is not generally a good idea. It is better to talk to a mortgage broker, who can provide you with a range of lenders and lending options to choose from. They can also lodge your application with multiple lenders. They do this free of charge, as they make their money by charging the lenders to whom they refer potential customers. However the lender may pass on part of the fee charged by the broker to the borrower in the application fee they charge. When choosing a mortgage broker, it is a good idea to ask them about their banking and finance industry history.

When working out the amount of money you need to borrow, you should be aware that there are a number of additional costs involved in buying a home. You have to pay stamp duty on the purchase and on the mortgage, and rates and land tax on a pro-rata basis on the property being purchased. You will also have to pay solicitor’s or conveyancer’s fees in relation to the purchase, the lender’s loan establishment and valuation fees, mortgage registration fees, and property search fees, including title searches.

Title searches on the property being purchased are essential. This is done to make sure that all the title details and property identification are correct. The mortgage taken to secure the loan is actually lodged against the title, rather than the home.

For more information on mortgages go to http://www.creditworld.com.au/home-loans.html.

Summary

• A mortgage is an amount of money lent by a mortgagee or lender to a mortgagor for the purchasing a parcel land usually containing a house or unit.
• The lender can sell the land and home to recover the money lent if the borrower defaults on the loan.
• You should consider a mortgage broker to assist you with finding a suitable loan for your circumstances.
• If you have less than a 20% deposit of the purchase price, you may be required to pay for the lender’s mortgage insurance premium.
• There are a range of additional costs associated with buying a home.

Article correct at its author date: Jan 2007. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

If you would like to display this article on your web site please email us.