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Your Mortgage Product
These notes are intended
to provide an explanation to the borrower for the various
types of products contained within the Key Facts Illustration
(KFI). If you still have any queries after reading these
notes, please contact Michael McNulty on 01204 705110 and
I will provide further assistance.
Please note; in order for any mortgage lender to attract
new business, incentives are offered to either draw you
away from your present lender or attract new borrowers.
All interest rates quoted on your illustration are genuine
reductions from the lenders variable rate and will
not be clawed back or repaid in some other way at a later
However in some cases if you have been offered a special
rate for a fixed period of time, there may be redemption
penalties to pay. This would apply if you attempted to redeem
some, or all, of your mortgage or loan or switch to another
lender within the special rate redemption period. These
penalties in some cases will go beyond the special rate
scheme period. In all cases once the scheme rate and benefits
have ended you will revert to the current lenders variable
rate. In some cases the lender will offer further inducements.
Discounted Rate - the mortgage
interest rate will be lower than the current normal variable
rate for a given period, usually defined by a fixed percentage
reduction to the lender's normal variable rate e.g. 2.00%
below variable rate for 2 years. If the lenders variable
rate rises or falls, the borrower will pay the new rate
but maintain the 2% discount.
Capped Rate - the mortgage or
loan interest rate will not exceed the specified interest
rate quoted during the defined capped rate period, however
borrowers will benefit if the interest rate falls below
the capped interest rate.
Fixed Rate - a loan where the
monthly payments will remain the same for the prescribed
period and the rate payable will not change during that
period regardless of changes in the lender's standard variable
Variable Rate - Is the interest rate that the lender is
currently charging to its own borrowers who are not enjoying
any special benefits. This will vary over the term of the
loan, normally in line with the general cost of borrowing.
LIBOR-linked London Inter
Bank Offer Rate. A mortgage linked to LIBOR will be charged
at a given margin over the Interbank rate (typically 1 to
1.5%) and is likely to be reset quarterly. LIBOR rates tend
to be more volatile than ordinary mortgages as the rate
payable will change almost every quarter. They offer the
customer the opportunity to pay a rate closer to the true
cost of money. In a low interest rate environment they are
likely to result in lower overall payments but will be more
expensive in periods of higher interest rates.
The relationship of LIBOR to the Standard Variable Base
Rate (SVR) can give an indication of the possible future
direction of base rates. If LIBOR is significantly above
the Standard Variable Base Rate it indicates that the money
market believes interest rates are about to increase. If
it is significantly below, the reverse is true. The key
LIBOR rate is the 3-month LIBOR, however rates are also
quoted for one, six and twelve month periods.
Base Rate Tracker A mortgage
where the interest rate payable is linked to the Bank of
England Base Rate during the scheme period. This is usually
lower than the lenders Standard Variable Base Rate.
Normally the interest rate payable is calculated using the
Bank of England base rate plus the lenders own loading.
This will vary over the term of the loan as the Bank of
England base rate changes. The Bank of England base rate
is reviewed at specified intervals.
Survey Fee- this is normally paid
by the applicant(s) to the lender at the time the mortgage
or loan application form is submitted. The fee is paid to
the Surveyor who carries out the valuation of the property.
If the application does not proceed to valuation for any
reason, this fee is normally returned to the applicant(s),
by the lender (or lenders packager), less an administration
fee. This administration fee is non-refundable
under all circumstances.
Self Certification- a mortgage
or loan, where the borrower signs a statement of his or
her income and the lender makes fewer checks than normal
on the accuracy of this statement.
Shared Ownership- a method of
purchasing a property in partnership with a Housing Association.
The borrower purchases part of the property and rents the
remainder from the Housing Association. The arrangement
is designed for people who could not otherwise become homeowners.
The minimum purchase amount is usually 25% with the remainder
available to be purchased in blocks of 25%.
Self-Build - a property, the construction
of which is controlled by the borrower. A surveyor will
normally inspect the standard of the work at defined stages.
Loans on Self-Build properties will normally be advanced
in stage payments and are subject to strict limits on loan
to value. A qualified architect will need to be involved
and lenders will frequently look for the builder to have
NHBC or Foundation 15 guarantees.
Interest-Only- a loan for which
only monthly payments of interest are paid during the term
of the loan. The balance of the loan (the capital) would
remain outstanding during the interest only period and would
require to be redeemed later. This would be either by larger
payments of capital and interest or as a lump sum at the
end of the mortgage term from some other source such as
an existing investment or pension arrangement.