Mortgage and loan are the two terms that are commonly used in the finance business. Loans for investing in a home are secured through a mortgage. Therefore, people have started to use these words as synonyms for each other. However, there is a difference between these two terms that you need to understand if you are looking for a first home owner grant. Read on to understand the difference between a mortgage and loans and the number of borrowing options for you. 

What Is Mortgage?

The meaning of the term mortgage does not refer to the loan. It refers to the legal agreement between the mortgagor of the mortgage holder and the mortgagee, the mortgage lender. The mortgage agreement between these two says that if the borrower defaults in loan repayments, the loan ownership can be transferred to the lender. The borrower only owns the property unconditionally once they repay the total loan payments. 

What Is A Home Loan?

A home loan provided by a finance broker in Sydney could be any type of loan simply taken to invest in a property. A home loan is usually secured with a mortgage. However, it is possible to get an unsecured loan, which would be without a mortgage and still be considered a home loan. In this case, even if the borrower defaults on the loan repayments, the property would still belong to them. They might need to sell the property or make other arrangements to get out of debt, or else the property ownership will be seized by the bank. 

The Difference. 

HomeHome loans in Sydney are financial agreements that you sign with the lender, upon which they give you a certain amount of money you must pay back during the loan term with an agreed interest rate. At the same time, a mortgage is a legal agreement that gives your lender ownership of your property until you repay the loan to have unconditional ownership. 

What Are The Mortgage Options Available For You? 

Fixed Rate Mortgage.

A fixed-rate mortgage holds the interest at the current rate throughout the loan term and is applied to the whole balance borrowed. Exploring this option when the interest rate is low in the market can be beneficial as It will protect you from fluctuations in the rates. It is essential to note that if the interest rate falls from what you have been fixed for, you might end up paying a high interest. 

Variable Rate Mortgages.

The variable rate mortgage is the variable rate that complies with the Reserve Bank of Australia's target rate. The interest rate of repayments for home loans in Sydney with a variable mortgage will fluctuate during the loan term as the lenders can increase it according to the target rate of RBA. You will benefit from a low interest rate if the RBA lowers the target. However, it is also possible that it might increase the target, for which you will end up paying high interest. 

Interest Only Mortgages. 

An interest-only mortgage refers to the loan's interest-only period provided by a finance broker in Sydney, where you only pay the interest of the amount borrowed without the principal amount of the loan. This means that with the interest-only period attached to the loan, you only have to pay the interest on the borrowed amount, and the repayment of the principal amount will start only when the interest-only period ends. This type of mortgage loan is a great way to deal with the loan as you make low repayments, which helps you cope with financial imbalances. However, the duration of the loan term will increase as you won't be paying any principal amount of the loan in this period. 

Split-Rate Loans.

Split-rate loans involve the aspects of both fixed-rate and variable-rate mortgages. One part of this loan helps you to enjoy the fixed rates, and the other gives you exposure to the variable rates. This means that with a split-rate loan, you get to enjoy the benefits of a fixed-rate mortgage for one portion of the loan, and the rest of the home loans in Sydney will be paid with a variable-rate mortgage. 

Low Doc Loans.

A Low-doc loan is for first-time home buyers who do not meet the conventional home loan eligibility criteria. Despite some challenges, you will still be able to get a mortgage to invest in a property as the difficulty or requirements for obtaining the mortgage will be reduced. This is a good option for first-time home buyers. However, they would have to pay a large deposit amount to be eligible for this loan, and the fees may also be higher. The loan-to-value ratio, LVR, applied on this loan will be strict as you pose an increased risk. 

Construction Loan. 

This loan is for those who wish to build a home on a plot and require funding to cover the construction cost, which all the lenders may not provide. Some extra fee is charged with the loan. However, it is better to take advice from the experts before getting home loans in Sydney. 

These are the mortgage options available for you to choose the one that fits your needs and requirements.