Most people know about mortgage affordability checks, deposits, credit checks and mortgage offers. But what about arguably the most important part of the mortgage application process? The document that shows you exactly what your mortgage advisor recommends and shows you what the future of your new home loan will look like, before you commit. In this blog, we will go through what a mortgage illustration is, why it is so important, and everything else that you need to be aware of.
What Does A Mortgage Illustration Mean?
So, what’s the meaning of a mortgage illustration? An illustration when getting a mortgage is a document that your mortgage advisor completes based on their advice and your preferences after you have had your mortgage appointment. The document, which is usually electronic but can be a physical document, goes through all the specifics of what your new home loan is and what you are agreeing to do as a new mortgage customer.
A mortgage illustration should always be completed by a professional mortgage expert such as a CEMAP qualified and regulated mortgage broker. The illustration should be personally tailored for you and your circumstances, and your advisor will ensure that the illustration encompasses all of the elements that you have discussed with them and have jointly decided are most beneficial for you. Think of the document as a mortgage key facts illustration that displays a hypothetical mortgage that has not been completely confirmed and applied for yet. It is for display purposes to illustrate a point. Under no circumstances should you confuse this with a full mortgage application.
Mortgage Illustration Document
Let’s go through a generic mortgage illustration document and see what kind of information you should expect to see. Remember that this is just a mortgage illustration example, and each document is specifically tailored for the borrower’s own circumstances.
- The illustration normally starts with an introduction. By the time you are provided with an illustration, you and your advisor will have decided on a specific mortgage lender that you will approach for your loan. Sometimes you might still be deciding which product you want to proceed with or how much mortgage you want to borrow, so your advisor may provide you with a few different illustrations. The introduction section will normally clearly say the name of the bank e.g. HSBC mortgage illustration.
- Next, the document will show you the full details of your mortgage advisor. This is to show that your advisor is fully authorised to submit mortgage applications and illustrations through the lender. The document will also show you clearly how much commission the lender will pay to your mortgage advisor for submitting the business. The commission does not change from lender to lender so there are no preferential banks or building societies.
- You will then be provided with the main features of the loan. In this section the illustration will show you the total mortgage amount you are borrowing. This figure will have been decided on by you and your advisor prior to the illustration being produced. This section will also specify how many years you are taking the loan for (agreed between you and your advisor), and the total amount you are required to pay back including any interest incurred.
- In the next section the illustration specifies your interest rate, carefully advised and chosen by your broker, and your real monthly payment. This section will also detail any separate fees being charged such as broker arrangement fees (agreed between you and your advisor) and product fees to secure the product if they apply.
- Finally, the document will go through any other specific features of the loan that you should be aware of such as flexibility to pay back the loan early or rights you have as a borrower.
It is extremely important that you carefully read through any illustration provided to you by your mortgage advisor to make sure that you are completely clear on what your loan means and to make sure you are happy with everything that they have recommended.
Key Facts Mortgage Illustration Example
Here is an example of how a key facts mortgage illustration might look:
1. Lender
HSBC
Telephone Number: 0345 600 5847
PO Box 6125
Coventry, West Midlands
CV3 9GW
2. Credit intermediary
Oportfolio Ltd
5 St. Georges Court
131 Putney Bridge Road
London
UK
SW15 2PA
Contact: TBC
Telephone Number: 02088771169
Oportfolio Ltd recommend, having assessed your needs and circumstances, that you take out this mortgage.
Oportfolio Ltd’s fees are described in section 4.
HSBC will pay your advisor an amount of £0.00 in cash and benefits if you take out this mortgage.
3. Main features of the loan
Product: 000000 – Intermediary 2 Year Fixed £999 Fee Remortgage Standard
Amount and currency of the loan to be granted: £500,000 plus £999.00 for fees that will be added to the loan.
Duration of the loan: 30 years
This is a capital repayment mortgage subject to a variable interest rate. This mortgage initially has a fixed rate until 31/03/2025.
Total amount to be repaid: £650,000
This amount is illustrative and may vary, in particular in relation with the variation of the interest rate.
Please refer to the lender for further details.
This means you will pay back £1.96 for every £1 borrowed.
4. Interest rate and other costs
The annual percentage rate of charge (APRC) is the total cost of the loan expressed as an annual percentage. The APRC is provided
to help you compare different offers. The APRC applicable to your loan is 5.3%
It comprises:
Interest rate
• A fixed rate of 5.64% until 31/03/2025
• Followed by HSBC’s Standard Variable Rate, currently 5.04%, for the remaining term of the mortgage
Costs to be paid on a one-off basis
Booking Fee which is payable to HSBC when your mortgage completes. This fee is not refundable. This fee will be added
to your mortgage.
£999.00
Broker Application Fee which is payable to Oportfolio Ltd on application. This fee is not refundable. £0.00
Mortgage Illustration Vs Agreement In Principle
A common and very valid question often asked by inexperienced borrowers is “Is a mortgage illustration a mortgage in principle?”. The answer is no. A mortgage illustration and a mortgage in principle or agreement in principle are two completely different things. An agreement in principle is a credit check carried out by your mortgage advisor to ensure that you can afford the mortgage you are wanting to apply for and that your credit score is good enough for the lender’s criteria.
A good professional mortgage advisor will always carry out an agreement in principle for you prior to issuing any formal illustrations. This is because, if you don’t pass a credit check, then you won’t be able to apply for a mortgage in the future. A decision in principle gives you the initial confidence that a mortgage is possible and then an illustration will let you know the more in-depth specifications of a potential mortgage. It is important that you don’t think that you have an agreement in principle if you only have a mortgage illustration. “Is a mortgage illustration a good sign?” you might ask. Yes, of course it is. It is a sign that you and your advisor have worked together to create a great mortgage plan and you are almost ready to bite the bullet and go for gold.
Mortgage Illustration Vs Mortgage Offer
Another very common and valid question we see is “Is a mortgage illustration an offer?”. Again, the answer is no. A mortgage offer is two steps after you receive an illustration. Once you have received your illustration and are happy with everything that has been recommended, your advisor and their admin team will submit your full mortgage application. Once your application has been assessed by the lender, they will hopefully produce a mortgage offer for you.
A mortgage offer is a document that essentially says that based on your credit and based on the information and documents that you have submitted to then have been carefully assessed by mortgage underwriters, and they are happy to offer you the loan they have requested. Knowing the difference between a mortgage offer and an illustration is perhaps the most important thing to take from this blog. If you have an illustration, this absolutely does not mean that you have been accepted for a mortgage. Only after a full offer has been issued can you start celebrating! So, if one of your friends comes up to you and asks, “Is a mortgage illustration the same as a mortgage offer?”, you can share your newfound wisdom with them.
How To Get A Mortgage Illustration
The easiest way to go about getting an illustration is by getting in contact with a mortgage advisor. By calling a mortgage advisor like Oportfolio, you can have a one to one appointment with a professional financial advisor who will go through all of your finances with you. They will then work with you to craft your own personal mortgage, based on your income, outgoings, and what kind of loan you are hoping to get. They will then request some documents from you that they need such as payslips, bank statements, and ID.
Once they have made sure that everything is correct with your documents, they will run a decision in principle (credit check) for you to ensure that in principle, your mortgage is potentially possible and things like affordability and credit score won’t stop anything. Then, they will create an illustration or several mortgage illustrations if you have not completely decided how you want to proceed.
What Happens After A Mortgage Illustration?
Now that you know what is mortgage illustration, the next steps in the process are pretty simple to understand and can be straight forward. Once you and your advisor are both happy with your illustration and the plan of how your loan will play out of the next few years, you are ready for your application to be submitted. If you give your advisor the go-ahead, they will normally get your full application submitted within 48 hours with the help of their administration team.
This application process involves a digital application form to be completed which is based on the illustration you have agreed. Then, once this has been completed and submitted, the administration team will work on uploading copies of all of your documents to the lender’s portal for them to assess too. After all of this has been done, you need to sit back and wait for your application form and your documents to be checked by the lender’s underwriting team. Along the way, the administrators will regularly check the progress of your application with the lender. They will also be on hand to resolve any issues that the lender has with the application such as discrepancies with documents or any errors in the application.
As long as everything is assessed quickly and any issues are resolved, you should receive a formal mortgage offer from the ender anywhere from a few days to a few weeks from submitting the application. It is then down to your solicitors to complete the legal side of your purchase an arrange an exchange and completion date.
Oportfolio’s Mortgage Advisors
Senior mortgage and protection advisor at Oportfolio mortgages Jade Pinkerton says:
“I love mortgage illustrations; they provide the full details of the mortgage being applied for – sometimes known as a KFI (key features illustration) or ESIS (European Standardised Information Sheet). They provide the full details, not just the rate, bank, monthly payment – but also the finer details – such as early repayment charges.
It is important that mortgage borrowers realise this is not a ‘mortgage offer’. The documents do in fact look very similar, and the content is also similar so I can see where the confusion might be for some. But the Illustration is an outline of what you are applying for – nothing is agreed or guaranteed at that stage.”
If you or anyone you know is purchasing a property or are looking to remortgage their existing home and wants to get the best deal possible, speak to one of our experienced mortgage professionals today. Your advisor will be able to go through everything with you and craft a bespoke mortgage illustration so that you know exactly what you are getting out of your new loan. The mortgage market is a challenging one to navigate, don’t go it alone. Give a member of our team a call today to see how we can help.
