When you apply for a mortgage you will be provided with information about a firm’s service. You must also be provided with some form of a mortgage illustration document(s) at the point where a product is recommended or chosen. Alternatively you can ask for it at any time. When the lender finally agrees to lend the money to you (after they have carried out all the necessary checks), they will send you a Mortgage Offer. This guide explains why it’s important that you understand the information and documents you will receive and how i can help you get a better mortgage deal
- Key messages about the mortgage service
- Double check whether you’re getting advice
- Mortgage illustration document
- How the keyfacts Illustration can help you
Key messages about the mortgage service
Ask your lender or adviser to explain their mortgage service on your first meeting or when you contact them and ask for it in writing.
The ‘key messages about the mortgage service’ must be explained to you when you talk to your lender or mortgage adviser.
It has to cover:
- Whose mortgages you are being offered – for example a lender will generally only offer their own mortgages whereas a broker might arrange mortgages from across the whole market. They must make it clear to you if there are any limitations in the range of mortgage products they provide. You need to know how much of a choice you’ll have.
- How much you will need to pay for the service. This might be nothing, a flat fee, or a percentage of the mortgage amount, or both. You should also be told if an adviser gets paid commission.
- If the mortgage details are being provided on an information-only basis and you’re making a decision on your own also known as “execution only”, this should be made clear to you. Brokers and financial advisers have to offer advice.
This information must be provided clearly and prominently, as part of the initial conversation (in the case of a meeting or telephone conversation) or on screen (in the case of internet sales) or in a document (in the case of a postal application).
Double check whether you’re getting advice
You will receive advice on most mortgage sales. However there will be exceptions.
For instance, you might reject the advice you’ve been given, or want to go ahead based on information you’ve gathered on your own online or by post.
This is known as an execution-only sale and the lender will write to you making it clear you have not taken advice and it hasn’t assessed the suitability of the mortgage for you.
Having advice from a qualified expert offers you extra protection.
If the mortgage turns out to have been unsuitable you can complain to the Financial Ombudsman Service.
You might lose this right if you choose an execution only sale.
As a general rule, an execution-only sale is where there has been no dialogue between you and the firm during the sale though there are exceptions if you’re simply asking for more details about your chosen mortgage.
You can find out more about your rights if you get poor advice in our guide below.
Do you need to pay for mortgage advice?
You don’t necessarily need to pay an upfront fee for mortgage advice as some mortgage brokers offer a fee-free service.
Instead of getting paid by the mortgage borrower, they take a commission from the lender.
Follow the link below to find out more about the different types of service offered.
Mortgage illustration document
When a lender or an adviser recommends a mortgage, or when a lender gives a mortgage offer, they have to give you a mortgage illustration document which is tailored to your mortgage needs and explains:
- Your monthly repayments
- Any fees or charges you have to pay upfront to get the mortgage
- The overall cost of the mortgage, including interest, over the full term
- The rate of interest or Annual Percentage Rate of Charge (APRC) and the type of interest (i.e. fixed or variable)
- What happens if interest rates rise and how this affects your repayments
- If there are any special features of the mortgage, such as the ability to overpay or underpay
- If you can make overpayments to the mortgage and any penalties for doing so
- What happens if you don’t want the mortgage any more, and
- The length of the reflection period (i.e. at least 7 days, or more depending on the lender).
This document is usually known as the keyfacts Illustration (KFI).
By 2019, the European Standard Information Sheet (ESIS) will replace the current KFI.
The ESIS document is similar to the KFI but will have more detail about the mortgage and the terms they’re offering you.
Some mortgage advisers and lenders might give you the ESIS when they recommend a mortgage or make a mortgage offer.
While others might continue to give you an enhanced version of the existing KFI document with supplements of any additional information as needed until then.
You will also get this document even if you decide to go with an execution only sale.
How the keyfacts Illustration can help you
The keyfacts Illustration document or the ESIS if that is given to you instead, makes it easy for you to compare the total cost of mortgages side by side because the documents contain the same information, usually presented in the same way.
For example, you can quickly compare monthly repayments, and what happens at the end of any introductory deal.
Of course, you should also read the mortgage offer small print before signing up to any mortgage deal.
Don’t be caught out by charges you weren’t aware of.
Read our guide below to understand more about the different fees and charges that you need to compare.
This article is provided by the Money Advice Service.