What is a mortgage?

A mortgage backed loan has a few moving parts: the principal you borrow, the interest charged on the outstanding balance, the term, and the scheduled repayments that bring the balance down. The mortgage itself is the security registered on the title, and that registration is what protects the lender.

Before settlement the lender arranges a valuation, or asks for a certificate, to confirm what the property is worth. Repayments can be weekly, fortnightly or monthly. Repay the loan in full and the mortgage is discharged from the title. Fall behind far enough and the lender can enforce the security and sell the property to recover what it is owed.

A variable rate loan moves with the market or with lender repricing, and usually comes with offset and redraw. A fixed rate locks the rate for a period, commonly one to five years, in exchange for less flexibility and possible break costs. A split loan puts part of the balance on each.

Repayments are either principal and interest, which builds equity, or interest only for a set period, which lowers short term payments but leaves the principal where it is. Other structures include a line of credit secured by the home, a construction loan drawn as building stages complete, a guarantor loan where a family member provides security, low doc lending for self employed borrowers, and a reverse mortgage for older homeowners.

A mortgage costs more than the headline rate. Expect application or establishment fees, ongoing account or package fees, valuation and settlement costs, discharge fees when you pay the loan out, lenders mortgage insurance if your loan to value ratio is above the lender's threshold, state stamp duty on the purchase, and break costs if you end a fixed period early.

Lenders assess income, employment stability, living expenses, existing debts, credit history, deposit size and the property itself, applying a rate buffer to test that you could still repay if rates rose. When you compare offers, read the credit guide and the precontractual statement, weigh fees and features alongside the comparison rate, and look at total cost over the time you expect to hold the loan.