How to read a mortgage quote
Your mortgage illustration, sometimes called a Key Facts document, is designed to assist you to understand the terms, conditions, pay rates, and fees of the mortgage for which you intend to apply.
All key facts documents that apply to regulated mortgage products are set out in the same way to make it easier for you to compare products against each other.
The document is set out in numbered and titled paragraphs, each paragraph referring to a particular aspect of the mortgage product.
Your Mortgage Quote
At the top of the document you will see the name and address of the party that has prepared the document, this may be a mortgage lender or the mortgage broker. This is followed by the name of the applicants and details showing when the illustration was produced.
You should note that a mortgage illustration document is not a mortgage offer, and does not oblige the lender to provide you with the mortgage. As the name suggests, a mortgage illustration is purely for illustration purposes.
Your Mortgage Quote – section 1
Section One tells you about the illustration, mentioning the regulator as the Financial Services Authority. Section one points out that all firms are required to give you illustrations and that you should obtain other illustrations if you want to compare mortgages.
Your Mortgage Quote – section 2
Section two sets out the service you are being provided with. If using an independent mortgage broker, you are getting an advice and recommendation service. When you deal direct with a lender, you will see the tick in the lower box confirming that you are getting information only, and no recommendation is being made.
Your Mortgage Quote – section 3
Section three sets out the size of the loan you require. Where any fees are being added to the loan, they will be listed here. This section contains the anticipated valuation of the property, the term of the contract, and the repayment method.
Your Mortgage Quote – section 4
Section four names the lender and the lender’s mortgage product code and product title. Listed here is the interest rate levied, the type of interest rate, in this case a fixed rate, and the period that the interest rate will be applicable.
Any restrictions on the mortgage will also be listed in section four.
Your Mortgage Quote – section 5
Section five sets out the overall cost of the mortgage throughout the term of the contract. This section gives you a figure of the amount you pay back for every pound borrowed, and quotes an annual percentage rate or APR, for comparison purposes.
Your Mortgage Quote – section 6
Section six sets out your monthly payment. Often you will see more than one line. The first line refers to the initial monthly payment, and the second line the ongoing monthly payment once the initial product rate has ended.
Your Mortgage Quote – section 7
Section seven is intended to make sure you are clear of the effect on your monthly payments if interest rates were to rise. This section notes the increase in your payment based on a one per cent increase in the pay rate.
Your Mortgage Quote – section 8
Section eight outlines the fees payable on the mortgage, and also tells you when these fees need to be paid. If any fees are to be added to the loan, this will be indicated here.
Your Mortgage Quote – section 9
Section nine refers to any insurance that you need to take out as a condition of the mortgage. This is not always applicable, and sometimes it is left blank.
Your Mortgage Quote – section 10
Section ten lets you know of any charges if you redeem the mortgage at any point.
This section often refers to early repayment charges which are levied on the mortgage if you come out of your rate in the early years. Early repayment charges are applicable to most mortgage products on the market.
The box in section ten tells you what happens if you move home.
Many mortgage products are portable. This means that, within certain terms and conditions, the lender allows you to take the mortgage with you when you move home. If your product carries this portability feature it will be noted here.
Your Mortgage Quote – section 11
Section eleven outlines your options to make overpayments on the mortgage and sets out any charges if you do overpay.
Your Mortgage Quote – section 12
Section twelve outlines any additional features on the product. Items here may include cash-backs, free valuations, or options to switch to other products.
Your Mortgage Quote – section 13
Section thirteen states any fees paid by the Lender to the introducing party.
Your Mortgage Quote – section 14
Section fourteen gives you contact details for the provider of your mortgage illustration.
The mortgage illustration document includes a reminder that your home may be repossessed if you do not keep up repayments on a mortgage.
Finally, a repayment table shows how your mortgage debt is targeted to be repaid during the term of the mortgage.
Mortgage illustrations are designed to help you make a decision on whether a mortgage product is right for you.
Read them carefully, and if you have any queries refer to the person who provided you with the illustration.
When you receive your formal mortgage offer you will see that it is set out in the same way as your illustration. This enables you to compare the two, to make sure that no errors have been made.
Always make sure you get independent mortgage advice.
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