Readers who own their own home will likely be familiar with a mortgage, which for most people is simply the reason most of their pay packet disappears from the bank account each fortnight.

However, many people are unaware of the details of what a mortgage entails, or just how many rights a mortgage grants to your bank.

Firstly, let's clear up a common misconception - most people refer to a mortgage, when really they are talking about their home loan.

The loan is the money that the bank lends to enable you to buy a house.


The mortgage is the security the bank takes over the property, in return for that loan.

A mortgage is registered against a property title, and gives the bank recourse to the property if you fall behind on your loan repayments and cannot repay what you owe the bank.

It grants the bank rights to inspect the property, be noted on the insurance policy, be advised if any building works are carried out on the property, and to sell the property in a "mortgagee sale" in a worst case scenario.

When you sign your loan agreement with the bank, the terms and conditions will normally grant the bank power of attorney for the property, so that they can sign things on your behalf if they need to sell the property in a mortgagee sale.

A mortgage usually secures all of your loans with the bank, so for example if you fall behind on your credit card bills with the same bank, the bank has security by way of the mortgage for that debt.

A mortgage comes with certain obligations (besides the primary obligation to repay what you owe, with interest).

It includes obligations to tell the bank if you want to move out of the property and rent it to tenants, if anything happens that affects the property's value, or if you fall behind on your rates (which you agree not to let happen, since the council can go to your bank to seek payment if it needs to).

Each mortgage has a "priority sum", which is the amount up to which the bank has first priority over any other bank or creditor.


The priority sum is usually set 1.5 to 2 times higher than what you initially borrow, and sometimes more, in case the bank allows you to borrow more money in future (eg. for renovations).

Richard Small is a senior solicitor at Jacobs Florentine. The information above is general only and cannot replace specialist advice. The writer accepts no responsibility or liability for reliance on, or use of, this article.