Mortgages… things to know about mortgage jargon
1 Know your IDDs and KFIs
Initial disclosure documents (IDDs) spell out mortgage advisers’ services, such as whether they can recommend products from one company only, or are free to sell mortgages from all lenders. Key facts illustrations (KFIs) are given to borrowers when they apply for or are recommended a mortgage. These outline the mortgage’s cost over its term, repayments, fees and an interest rate expressed as an annual percentage rate (APR).
2 What the APR tells you
The APR tells prospective customers the interest rate over the life of the mortgage. This will factor in any initial offer rate and the lender’s standard variable rate to which the mortgage reverts, as well as the impact of fees.
3 What it doesn’t tell you
The APR in the key facts document does not reflect that many mortgage borrowers switch to better deals than the lender’s standard variable rate (SVR) after their initial offer expires. Neither does it include the potential costs on leaving the mortgage, such as administration fees and early repayment charges.
4 What’s “standard” about the SVR?
Standard variable rate sounds as if it is based on the Bank of England’s base rate, but it is a commercial rate that is different at every mortgage lender.
5 What if you pay up early?
Redemption penalties — also known as overhangs or tie-ins if they are in force after the initial offer period — are now more commonly known as early repayment charges. Borrowers who opt for mortgages with low fixed rates should know that they may be hit with early repayment charges that could run into thousands.
6 The cost of changing mortgage lender
There are a number of names for the charge imposed for switching mortgage lenders. Confusingly, these charges may be called a deed discharge, a deed release fee, sealing fees or a deeds administration charge. Whatever the name, the cost is creeping up towards £300.
7 What is an HLC?
The mortgage indemnity guarantee is now known as the higher lending charge (HLC) on those borrowing more than 90 per cent of the value of a property. Not all lenders operate HLCs, but it can add up to £1,500 to the cost a mortgage.
8 What about fixed-rate fees?
Borrowers going for fixed-rate mortgages will pay an extra cost. These can be known as reservation, booking or application fees. They could cost up to £200 and are non-refundable if a transaction falls through.
9 What is differential pricing?
Differential pricing means that the cost of the mortgage will depend on where you buy it. Once you have found the mortgage you want, could it be arranged through a different channel?
If you would like to discuss your specific property requirements with us please e-mail or contact us to arrange a meeting.
Your property may be repossessed if you do not keep up repayments on your mortgage.
For mortgage advice you can choose how we are paid: pay a fee, usually 0.5% of the loan amount, or we can accept commission from the lender.
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