What is a Mortgage?

Simply put, a Mortgage is a loan which is secured by a property and is another name for a Home Loan. A Mortgage is usually the cheapest rate loan a person can obtain, because the lender has the right to sell the property to recover their money if the loan repayments aren’t met, so their risk is very low.

The basic concepts your need to be aware of with a Mortgage are:

Loan Principal
"Principal" is the amount of money you borrow from the Lender when you take out a Home Loan, Mortgage, or other finance.

Loan Interest
"Interest" is the fee the Lender charges you for the use of their money. The interest charge on your loan depends on the amount of money you borrow, the interest rate, and the term of the loan.

Loan Term
"Term" is the agreed period you have to repay your loan. For some loans, this could be a year or less, while for most Home Loans it is 25-30 years. The longer your loan term the lower your repayments will be, but it will increase the interest you pay over the term.

Loan Repayments

Over the term of the loan, you make repayments on a regular basis - typically weekly, fortnightly or monthly. These repayments generally cover the interest charge and a portion of the Principal. As a general rule, the more frequent your repayments, the faster your loan will be paid off. When you make repayments that are “Principal and Interest” you are paying off some of the principal as well as the interest charged over that period. When you make “Interest Only” repayments you are not paying any of the principal off – this is typically used for investment loans.

To learn more about Mortgages & Home Loans, talk to Mortgage Australia today.