The Difference Between Mortgage vs. Deed of Trust

When it’s time to purchase a property, it’s important that you understand what financing options are available to you and how they work.

The more you know about your property finance, the more effectively you can protect your investment and make informed financial decisions. This can help you get into the home of your dreams and even begin to build your property portfolio.

What are the key differences between a mortgage and a deed of trust? Here is everything you need to know to buy with confidence.

What is a mortgage?

A mortgage is an agreement that begins when you borrow money from a lender in order to buy a new home or refinance your loan on an existing property.

Under mortgage conditions, your lender has a right to reclaim possession of your property if you default on your loan. In other words, your lender can take your property back and sell it to pay back what you owe if you fail to meet minimum repayment requirements. This is how your lender protects their investment when they provide you with the funds you need.

When you have a mortgage, you will be required to make regular repayments towards the value of your loan until you have paid off your debt. You will also need to pay interest on the amount you have borrowed, which could vary depending on fluctuations to national interest rates.

What is a deed of trust?

A deed of trust is a legal agreement that exists between a lender and a borrower. Under this agreement, the lender transfers the title of the borrower’s property to an escrow company, which acts as a trustee.

In most cases, a deed of trust involves three parties, including the lender, the borrower, and the trustee. With a deed of trust, the rights to the property are the borrower’s, and the borrower is responsible for the property. However, if you default on your loan, your property will be transferred to the trustee’s possession.

You will still need to make regular payments towards your loan with a deed of trust. If you fail to meet minimum repayment requirements, the trustee in your agreement has the right to claim and sell your property to clear the value of the loan and pay back the lender.

What are the key differences?

There are a few key differences between a mortgage and a deed of trust.

With a mortgage, you have an agreement exists between the lender and the borrower. With a trust deed, three parties are involved, including a trustee who can become the title holder of the borrower’s property.

In the event of foreclosure, a mortgage will require a court process to move towards a full and final settlement, whereas a trust deed can lead to a settlement that occurs outside of court. For stakeholders, this could mean that a deed of trust is less time-consuming with lower legal costs

With a mortgage, your lender can take back your property if you fail to make regular payments of the minimum amount. With a deed of trust, failure to make repayments will result in property possession being transferred to the trustee, instead of the lender directly.

Need more help navigating your mortgage or a deed of trust? Contact the best mortgage broker Sydney has to offer. Speak to the Our Top 10 team today.