A mortgage is NOT a loan
What most people don't understand is that a mortgage is NOT a debt - it is not a loan. This is no fault of the average person as the word mortgage has cleverly been used in advertising, by banks and other lenders, in such a way to make it appear that a loan and a mortgage are one in the same when in fact they are two very different things.
Most of us are accustomed to calling our home loan a mortgage, but that isn't an accurate definition of the term. A mortgage is not a loan, and it is not something that the lender gives you. It is a security instrument that you give to the lender, a document that protects the lender's interests in your property.
That's right - it's a separate document! It is attached to the title of your home and registered with the lands department. In Western Australia it's Landgate. http://www.landgate.wa.gov.au/docvault.nsf/web/FOR_DLI_Cocos_KeelingM1/$FILE/FOR_DLI_Cocos_KeelingM1.pdf
You can request a copy of your mortgage for a small fee - in WA it's $24.
When you take out a loan with your lender there are three documents.
· the loan application form (LAF) - this document is the one that lists your details, assets and liabilities, income, the amount of the loan and other relevant information. It is used to assess your eligibility for the amount you are borrowing - in particular your ability to repay the loan. This document has your signature on the same page as the amount you are going to borrow as well as other important information. Here is the Bankwest LAF. Take a while to read it and notice where your signature is.
· the loan contract - this document is an offer showing the amount of credit approved, repayment schedule and general terms and conditions. Within this document is a section detailing the security you are putting up to guarantee the loan in the event you default - your home is the security. his documents is the terms/conditions you agree to.
· the mortgage - is a separate document you sign and is registered with the appropriate lands department for your state. This document is a "security interest". It means that in the event you don't make the repayments you have agreed to in the loan contract the bank can make a claim on your home to recoup what they are owed. Here is the WA Landgate mortgage form: http://www.landgate.wa.gov.au/corporate.nsf You probably signed this thinking it was just another document necessary to get the loan.
So in a nutshell:
· You apply for a loan with Bank B. (LAF)
· Bank B approves your loan and makes an offer (Loan Contract)
· In exchange for the loan you grant Bank B a mortgage over your home
Without the mortgage the loan is unsecured. If you default an unsecured loan the creditor has to pursue you through the courts to make a claim for moneys owed A mortgage over your home is an automatic claim to a specific property you own in the event of default ie: your home.
So what? Well the general public's ignorance of the difference allows the banks to securitise their loans. Securitisation isn't illegal it just works without the borrower's knowledge.
Securitisation was rampant pre GFC...now all those securitised loans are in threat of default and the house of cards will tumble down.
read more about it here: