What is a mortgage?
What is a mortgage? – The Basics
If you enter into a loan contract with a bank or other financial institution to purchase a house or unit, it is almost always the case that the lender will require your property as security for your repayment of the loan. The document which formalises the security is called a mortgage. Under a mortgage, the lender is called the “mortgagee” and the borrower is called a “mortgagor”.
If you grant a mortgage to a lender, it means that the lender has an interest in your property until such time as you repay your loan to the lender in full. The interest which the lender holds means that it can take possession of the property if you do not make repayments as required by your loan contract. In very serious circumstances, the lender will step in and sell the property in order to recover its money.
What is a mortgage? – Lender’s control over your property
If a lender has a mortgage over your property, it means that the lender also has some control over what you do and don’t do with the property. The controls will be set out in your loan contract with your lender or the mortgage document itself and will vary from bank to bank. Some common examples of controls are:
- that you must always insure the property against damage with a reputable insurer;
- that you do not grant another mortgage over the property without telling the lender; and
- that you keep the property in good condition and carry out regular maintenance etc.
What is a mortgage? – Registration of your loan
Your lender will register its mortgage with Land and Property Information New South Wales (which you may know as the Land Titles Office). The mortgage will appear on the title of the property until you repay the lender’s loan in full. You cannot sell the property without getting the mortgage off the title of the property. This process is called “discharging the mortgage” and will only take place when you pay back your loan in full to your lender.
What is a mortgage? – The paperwork
A mortgage document can take many forms but is often only a few pages long. You will find that many lenders set out the terms and conditions of their loan to you in a longer “loan contract” which needs to be read together with the mortgage.
The documentation regarding loans and mortgages can be confusing and overwhelming if you have not seen such documents before. If you are at all uncertain about a loan contract or mortgage, you should seek professional advice from your conveyancer on the meaning of the documents. Keep in mind that loan contracts place serious obligations on borrowers and often commit a borrower for many years. It is worth your time and attention at the outset to ensure that the documents reflect what you understand your deal with the lender to be.