A complete guide to mortgages
Specialist Shared Ownership broker helps break down mortgage product offerings
Introducing Censeo Financial
Censeo Financial are an award-winning mortgage broker specialising in Shared Ownership and affordable homeownership. Having been trading for over 16 years, we work with many housing associations, councils and developers and have helped thousands of first time buyers get onto the property ladder. We have access to all lenders who offer Shared Ownership mortgages and often get exclusive deals that you wouldn’t get from going to a lender direct.
We understand the importance of providing a friendly and helpful service and have achieved 98% five star Google reviews in the last 12 months – we strive to offer the best service possible and to find our customers the best mortgage for their personal needs saving time and money.
What is a mortgage?
A mortgage is a type of loan used to purchase or refinance a property, land, or other types of properties. It is a legal agreement between a lender (bank, building society, or other financial institution) and the borrower (homebuyer).
The property then serves as collateral to secure the loan. When you buy a property, you will put down a deposit of at least 5% of the property price or share. The borrower repays the loan plus interest over a specified number of years until they own the property.
What is a mortgage term?
The repayment of the mortgage will depend on your own personal circumstances considering your age, goals, and financial situation. Generally, a mortgage will be between five and 40 years, most common mortgage terms are 25 years. Stretching payments over more years may reduce the monthly payment, but it also increases the total amount of interest that the borrower pays over the life of the loan.
What types of mortgages are there?
Most homebuyers take out repayment mortgages, this is where you pay back some of the loan and some interest each month. The other main alternative is an interest only mortgage, where you just pay the interest each month, this doesn’t repay any of the loan so at the end of the mortgage term you would have to repay the loan amount.
What is a mortgage product?
The mortgage product is made of the actual mortgage you are taking out. These will vary by the interest rate and terms and conditions. These will differ with each financial institution. The rate can rise or fall and generally is considered against the Bank of England base rate. Currently (autumn 2022) the Bank of England are raising the base rate to try to combat rising inflation and therefore lenders are raising their interest rates.
All lenders have a standard variable rate (SVR), this rate varies between lenders. A lender will offer several types of mortgage products sometimes referred to as deals. These include:
1. Fixed rate mortgages
This is a mortgage where your interest rate is guaranteed to stay the same for a set period. You can usually fix for two, three, five, seven or 10 years. Fixed rates are the most common type of mortgage for those wanting the same monthly payments to help with managing their finances and giving peace of mind.
2. Tracker mortgages
This is a mortgage where the interest rate you pay is based on an external rate – usually the Bank of England base rate – plus a set percentage. We have seen the Bank of England base rate continue to rise this year so if you opted for this type of mortgage product your monthly payments would rise by a percentage above the base rate. If the Bank of England base rate falls, so would your rate and therefore your monthly mortgage payments would also reduce.
3. Discounted rate mortgages
This is usually a variable rate with a set discount applied to it during a set period. Again, this can fluctuate depending on the lenders standard variable rate which is usually determined by the Bank of England base rate.
4. Offset mortgages
An offset mortgage is a home loan where savings held in a linked bank account are subtracted from the amount of mortgage that you pay interest on, meaning you can either pay less each month or pay off your mortgage more quickly.
At the end of the mortgage product your mortgage advisor will review the best mortgage for your needs, this may be a:
- Product transfer – staying with the same lender and transferring to a new mortgage deal
- Remortgage – moving to a different lender with a new mortgage product.
Most lenders will offer various mortgage products based on the size of deposit you are able to provide. Generally, these are 5%, 10% or 25% deposits. The larger the deposit usually the lower the interest rate available.
A lender will have underwriting criteria to meet for their mortgages, each lenders underwriting will vary and can change frequently therefore it is best to use a mortgage broker who knows the lending market and can advise you of the best mortgage for your personal needs and circumstances. Your personal income and financial commitments, your credit history and deposit and much more will determine who will lend to you and at what mortgage rate.
If you receive a large sum of money while you have a mortgage you can make a lump sum payment which can reduce the term of your mortgage or reduce your monthly repayments. If you have a mortgage product you can usually repay up to 10% of your outstanding mortgage balance without a penalty charge. This will be shown in your mortgage offer but if you are not sure ask your mortgage advisor or bank will be able to confirm this.
Using a specialist mortgage broker like Censeo can help and guide you through the mortgage process.