A mortgage is a loan used to purchase real estate. The property itself serves as collateral for the loan. If the borrower fails to repay the mortgage, the lender can take possession of the property through a legal process called foreclosure or mortgagee sale.

A borrower applies for a mortgage from a lender. If approved, the lender provides funds to purchase the property. The borrower then repays the loan, typically with interest, over an agreed-upon period.

Mortgage approval is influenced by factors such as credit score, income, employment history, debt-to-income ratio, loan-to-value ratio and the down payment amount. Lenders assess these factors to determine the borrower’s creditworthiness.

In a fixed-rate loan, the interest rate remains constant for a set period, providing stability and predictability in loan payments. On the other hand, a variable-rate loan involves interest rates that can fluctuate based on market conditions, leading to potential changes in loan payments. The choice between the two depends on factors like risk tolerance, preference for stability, and market expectations. Fixed-rate loans offer steady payments but may miss out on potential savings, while variable-rate loans can provide flexibility but come with the risk of higher payments if interest rates rise.

A down payment is an upfront payment made by the homebuyer, usually expressed as a percentage of the property’s purchase price. The amount required varies but is often around 20% of the home’s value. Some loans may require a lower down payment such as 5% for first home buyers.

Lender’s Mortgage Insurance (LMI) is a form of insurance that safeguards lenders when borrowers have a deposit of less than 20% of a property’s purchase price. It protects lenders in case of borrower default, covering the shortfall if the property sale doesn’t cover the outstanding mortgage balance. LMI is typically required for higher loan-to-value ratio (LVR) home loans, and the premium is paid by the borrower, providing risk mitigation for the lender.

Pre-approval is a process where a lender reviews a borrower’s financial information and provides an estimate of the loan amount they may qualify for. It strengthens a buyer’s position when making an offer on a home.

A mortgage broker or adviser is a professional who assists borrowers in finding and securing mortgage loans from various lenders. They act as intermediaries, providing advice on different loan options and helping borrowers navigate the mortgage application process. In contrast, a lender is a financial institution or entity that provides funds to borrowers for mortgage loans. The lender is the entity that lends the money to the borrower and ultimately holds the mortgage on the property.

While a mortgage broker/adviser helps borrowers explore options from different lenders, the lender is the institution that directly provides the loan and sets the terms and conditions.

• Most mortgages allow for early repayment, but it’s essential to check the terms of the loan. Some mortgages may have prepayment penalties or restrictions.

Refinancing involves replacing an existing mortgage with a new one and/or switching your current lender to a different lender. Borrowers may consider refinancing to get a lower interest rate, reduce loan payments, or change/increase the loan term. It’s typically beneficial when interest rates are lower than the original mortgage rate.