In the ever-changing world of property finance, navigating the intricacies of mortgages can be a daunting task for anyone, whether you’re a first-time buyer or a seasoned homeowner. With a plethora of terms, acronyms and documents to wrap your head around, it’s no wonder people often feel overwhelmed by the process.
One common source of confusion is the distinction between a mortgage illustration and a Mortgage Offer. In this article, we will demystify these terms, delve into their key differences, and provide a comprehensive understanding of the mortgage application process.
By the end of this article, you will have a clear understanding of these essential mortgage concepts, empowering you to make informed decisions on your journey to property ownership. So, grab a cup of tea and let’s get started.
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We will start by saying that an illustration is NOT the same as a mortgage offer.
An illustration, or quote, is designed to provide you with enough information so that you feel able to apply for the mortgage.
In fact it’s one of the documents that you receive at the beginning of the mortgage process.
Let’s explain further…
What is a mortgage illustration?
A mortgage illustration, also known as a Key Facts Illustration (KFI) or European Standardised Information Sheet (ESIS), is a document provided by a mortgage lender or broker during the initial stages of your mortgage application. This document offers a detailed breakdown of the mortgage product you are considering, outlining the key features, costs, and terms.
The primary purpose of a mortgage illustration is to give you, the borrower, a clear and transparent understanding of the mortgage product on offer. It enables you to make informed comparisons between different mortgage deals, ensuring that you find the most suitable option for your financial situation and property aspirations.
A mortgage KFI quote typically includes the following information:
- The mortgage lender’s name and contact details
- The type of rate (e.g., fixed, variable, tracker)
- The loan amount, term and repayment method
- The interest rate and any related fees
- The Annual Percentage Rate of Charge (APRC), which helps you compare the overall cost of different mortgage products
- The monthly repayment amount, including any changes if the interest rate adjusts
- Any additional fees, such as valuation or arrangement fees
- Information on early repayment charges or penalties
- A projection of the total cost of the mortgage over its term
It’s important to remember that it is an informative document designed to help you understand the mortgage product and make an educated decision about whether to proceed.
How do you get one?
Obtaining a mortgage illustration is a relatively straightforward process, and you can request one from a mortgage lender or mortgage broker during the early stages of your mortgage search.
When you request a mortgage quote, your broker will need some basic information about your financial circumstances. This helps them determine the most appropriate mortgage products for your situation and tailor the illustration accordingly.
Quotes are based on a specific lender’s deal, so the range of possible mortgages needs to be narrowed down to the ones most suitable for you.
You can obtain multiple mortgage quotes, making it easy to compare different deals.
What information is required?
There’s no commitment on your part at this stage, and no credit checks to worry about.
But to receive an accurate mortgage illustration, you’ll need to provide some essential information to the lender or broker.
This information helps them assess your financial circumstances and offer a tailored mortgage quote.
Here’s a list of the information typically required:
- The borrower’s names and ages
- Occupation and Income
- Property value
- Deposit
- Mortgage amount needed
- Mortgage term
- Interest rate type (fixed etc)
- Details of any credit issues
When do you get a mortgage illustration?
The process of obtaining a mortgage illustration takes place during the early stages of your mortgage search, before you submit a formal mortgage application. It’s a crucial step that helps you understand the mortgage products on offer and make an informed decision about which one best suits your financial circumstances and property goals.
Here’s a general timeline of when you can expect to receive a KFI illustration:
Initial research
As you begin researching mortgage products and familiarising yourself with the various types of mortgages available, you may come across some deals that seem suitable for your needs.
At this stage, it’s a good idea to start reaching out to lenders or mortgage brokers for more information.
Contacting lenders or brokers
When you approach lenders or brokers to discuss your mortgage options, they’ll ask for some basic information about your financial situation and property preferences.
Using this information, they can identify mortgage products that may be suitable for you.
Comparing mortgages
Once you’ve received mortgage illustrations for various mortgage products from different lenders or brokers, you can begin comparing the key features, costs, and terms of each deal.
This comparison will help you narrow down your options and identify the mortgage product that best aligns with your property goals and financial situation.
Choosing a mortgage
After reviewing the mortgage illustrations and selecting the most suitable product, you can proceed to the next step of the mortgage application process.
This involves submitting a normal application and providing the necessary supporting documentation.
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What is a mortgage offer?
A mortgage offer is a formal document issued by a mortgage lender after they have assessed your mortgage application and deemed you eligible for the loan. The mortgage offer serves as confirmation that the lender is willing to provide you with the mortgage to purchase the property, subject to certain terms and conditions. It’s a crucial milestone in the homebuying process and signifies that you’re one step closer to securing your new property.
The mortgage offer typically includes the following information:
- The mortgage lender’s name and contact details
- The type of mortgage (e.g., fixed, variable, tracker)
- The loan amount and term
- The interest rate and any related fees
- The monthly repayment amount, including any changes if the interest rate adjusts
- Any additional fees, such as valuation or arrangement fees
- Information on early repayment charges or penalties
- Conditions and requirements to complete the mortgage transaction, such as providing proof of building insurance or addressing any outstanding property issues
Once you receive a mortgage offer, it’s essential to review it carefully and ensure that you fully understand the terms and conditions outlined in the document. If you’re satisfied with the offer and accept it, the lender will proceed with the necessary steps to complete the mortgage transaction, such as instructing a solicitor to handle the legal aspects of the property purchase.
When are they issued?
Mortgage offers are issued after you have submitted a formal mortgage application and the lender has completed their assessment of your financial circumstances, credit history, and the property you intend to purchase.
This can be several weeks (or longer) from when you first applied.
It’s important to note that receiving a mortgage offer is not a guarantee that the property purchase will be completed. There may still be legal, contractual, or property-related issues that need to be addressed before the transaction is finalised.
However, it is a significant milestone in the homebuying process and indicates that the lender is willing to provide you with a mortgage.
How long are they valid?
A very common question is “How long does a mortgage offer last?” They aren’t open-ended and will have a validity period, during which time you must complete the property purchase process. The length of this validity period can vary depending on the lender and the specific mortgage product, but most mortgage offers are valid for around three to six months from the date of issue.
The aim is to ensure that the lender’s assessment of your financial circumstances and the property’s value remains accurate and up-to-date. Market conditions, personal financial situations, and property values can change over time, and the lender needs to manage it’s risk exposure accordingly.
If you’re unable to complete the property purchase in time, the offer may expire, and you may need to reapply for a mortgage or request an extension from the lender. It’s worth noting that not all lenders will grant extensions, and some may require a new mortgage application, credit check, or property valuation.
Can offers be withdrawn?
While it is relatively uncommon, mortgage offers can indeed be withdrawn, or amended, by the lender under certain circumstances. Lenders reserve the right to withdraw a mortgage offer if they believe that the risk associated with the loan has increased significantly or if certain conditions have not been met.
Some of the reasons may include:
Change in financial circumstances: If your financial situation changes significantly after receiving the mortgage offer, the lender may re-evaluate the risk associated with the loan. For example, if you lose your job, experience a drop in income, or take on additional debt, the lender may decide to withdraw.
Adverse credit information: If new negative information appears on your credit report after the mortgage offer has been issued, the lender may reconsider their decision. This could include missed payments, defaults, or County Court Judgements (CCJs) that were not present during the initial application process.
Inaccurate or fraudulent information: If the lender discovers that the information provided in your mortgage application is inaccurate, incomplete, or fraudulent, they may withdraw the offer. It is crucial, to be honest, and transparent when applying for a mortgage, as providing false information can lead to severe consequences.
Property issues: If the lender becomes aware of issues with the property that were not identified during the initial valuation or survey. This could include structural problems, legal disputes, or changes in the property’s value that significantly affect the loan-to-value (LTV) ratio.
Failure to meet conditions: Offers usually come with specific conditions that must be met before the loan is completed. If these conditions are not met within the stipulated time frame, the lender could withdraw the offer.
If a mortgage offer is withdrawn, it can be a stressful and disappointing experience. However, it’s essential to understand the reason behind the withdrawal and address any issues that may have contributed to the lender’s decision. Depending on the circumstances, you may be able to resolve the problem and reapply for a mortgage or explore alternative financing options.
What happens once you get one?
Once you receive a mortgage offer, it signifies that the lender is willing to provide you with the mortgage loan.
At this stage your mortgage is ‘ready’.
There’s no further work for the underwriters to do at this point, it’s now a matter of waiting for the legal/conveyancing side of things to catch up.
YOU WILL NEED TO:
Review the mortgage offer
Carefully read through the mortgage offer to ensure that you fully understand the terms and conditions outlined in the document. Make sure the offer aligns with your expectations, and don’t hesitate to raise any questions or concerns with your mortgage broker.
Accept the mortgage offer
If you’re satisfied with the mortgage offer and its terms, you’ll need to formally accept it. This usually involves signing and returning a copy of the offer document to the lender, confirming your agreement to proceed with the mortgage loan.
Inform your solicitor or conveyancer
Once you have accepted the mortgage offer, inform your solicitor or conveyancer about the offer details. They will handle the legal aspects of the property purchase and coordinate with the lender to ensure all necessary steps are completed.
How are illustrations and offers different?
Mortgage illustrations and mortgage offers are both important parts of the mortgage application process, but they serve distinct purposes and carry different implications. Here’s a breakdown of the key differences:
Purpose
A mortgage illustration is an informative document that outlines the key features, costs, and terms of a mortgage product, helping you understand and compare different mortgage options. On the other hand, a mortgage offer is a formal agreement between you and the lender, confirming that they are willing to provide you with the mortgage loan, subject to certain terms.
Timing
Illustrations are provided during the early stages of your mortgage search, before submitting a formal mortgage application. In contrast, the offer is issued after the lender has assessed your mortgage application, credit history, and property valuation, indicating their commitment to lend.
Information included
Mortgage quotations focus on the details of the mortgage product, such as interest rates, fees, monthly repayments, and loan features. The offer of advance contains similar information but also includes specific terms and conditions associated with the mortgage loan, as well as any requirements that must be met before the transaction can be completed.
Binding nature
A mortgage quote is not a binding document and does not guarantee that the lender will approve your mortgage application or offer you the mortgage product at the specified terms. A mortgage offer, however, is a formal commitment from the lender to provide you with the mortgage loan, and once accepted, it forms a binding agreement between you and the lender.
Impact on credit status
Requesting a KFI illustration does not impact your credit status, as it is an initial enquiry and not a formal application for credit. However, when you submit a mortgage application, the lender will conduct a credit check, which may temporarily affect your credit score.
Do you need both of them?
Yes, both mortgage illustrations and mortgage offers are essential in the mortgage application process.
Mortgage illustrations help you compare and choose the most suitable mortgage product, while mortgage offers represent the lender’s formal commitment to providing you with the loan. Obtaining and understanding both documents is vital to a smooth homebuying experience.
Where do they come from?
Mortgage illustrations and mortgage offers are both sourced from mortgage lenders or mortgage brokers.
Illustrations are issued during the initial mortgage search, while mortgage offers are provided by the lender after assessing and approving your formal mortgage application.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
FREQUENTLY ASKED QUESTIONS
No, a Key Facts Illustration (KFI) does not guarantee mortgage success.
A KFI is an informative document outlining the key features, costs, and terms of a mortgage product. It serves as a tool for borrowers to understand and compare different mortgage options during their search but does not guarantee that the lender will approve their mortgage application or offer the mortgage product at the specified terms. Mortgage success is only confirmed when a lender issues a formal mortgage offer and the borrower accepts it.
A mortgage quote is the same as a Key Facts Illustration (KFI).
Both terms refer to a document that provides an overview of the key features, costs, and terms of a specific mortgage product, helping borrowers understand and compare different mortgage options.
No, a mortgage illustration is not exactly the same as a European Standardised Information Sheet (ESIS). While both documents provide information about a mortgage product, they serve different purposes and have different formats.
A mortgage illustration, also known as a Key Facts Illustration (KFI), is a document specific to the UK mortgage market. It outlines the key features, costs, and terms of a mortgage product, helping borrowers understand and compare different mortgage options.
An ESIS, on the other hand, is a standardised document used across the European Union to provide comparable information about mortgage products. It contains very similar information to a mortgage illustration but follows a consistent format across all EU countries, making it easier for borrowers to compare mortgage products across different countries.
While mortgage illustrations are more commonly used in the UK, some lenders may provide an ESIS alongside a mortgage illustration, particularly if they operate in multiple European countries or if the borrower is from another EU country. However, the two documents are not the same and serve different purposes within the mortgage application process.
No, a mortgage illustration is not binding.
It is an informative document that provides an overview of the key features, costs, and terms of a specific mortgage product. It is designed to help borrowers understand and compare different mortgage options during the initial stages of their mortgage search.
A mortgage illustration does not guarantee that the lender will approve your mortgage application or offer you the mortgage product at the specified terms. It is simply an estimate of the costs and terms based on the information provided at the time. A binding agreement is only formed when a mortgage offer is issued by the lender and accepted by the borrower.
Yes, a mortgage offer can be different from the illustration. A mortgage illustration is an initial estimate of the key features, costs, and terms of a mortgage product based on the information provided at the time. It is not binding and serves as a tool for borrowers to understand and compare various mortgage options.
On the other hand, a mortgage offer is a formal, binding agreement between the borrower and the lender. The lender issues a mortgage offer after assessing the borrower’s mortgage application, credit history, and property valuation. During this assessment, the lender may discover factors that were not considered in the mortgage illustration, which could result in changes to the mortgage terms, interest rate, or fees.
While differences between the mortgage illustration and the mortgage offer are not uncommon, it is essential for borrowers to carefully review the mortgage offer and ensure they understand and agree with the final terms before accepting it. If you have concerns or questions about any differences between the illustration and the offer, it is advisable to discuss them with your mortgage broker or lender.
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