What Is A Mortgage Illustration? A Simple Overview
What is a mortgage illustration? A mortgage illustration is a document that your mortgage lender must provide to you free of charge when you apply for a mortgage. It sets out the key terms of the mortgage, such as how much you’re borrowing, the interest rate, and monthly repayment terms. The illustration will also list any fees or charges associated with the loan, such as origination fees or closing costs and will show you an estimate of the monthly payments, based on the information that you’ve provided during the mortgage application process. The illustration must include a statement that it’s only an estimate and actual repayments may be higher or lower.
Getting a mortgage is one of the biggest financial decisions of your life so you must have a good understanding of what you’re signing up for. Part of the process should include making sure that you have a good understanding of the different types of mortgages available and what each entails. During your research, you may come across the term “mortgage illustration.”
Read on to learn more about mortgage illustrations, what they are and what they mean for you so that you can stand the best chance of making an informed decision about your home financing.
More About Mortgage Illustrations
A mortgage illustration is a document that outlines all of the important details of a home loan. It includes the interest rates, monthly payments, and other important information about the mortgage and is an important part of the mortgage process for everyone using finance to purchase their next property.
The document is a useful way to compare one mortgage deal with another to see which one is best for you so it’s important to fully review your mortgage illustrations before signing any papers. This can help you to understand all of the costs involved so that there are no surprises down the line and that you can make an informed decision about your financial future.
What Is Included?
A mortgage illustration must include the following information:
- The amount being borrowed
- The term of the loan
- The interest rate
- Your monthly repayments
- Any fees or charges that are associated with the loan, such as an origination fee
- An estimate of your monthly payments, based on the information that you provided during the mortgage application process
- A statement that the illustration is only an estimate and that the actual repayment amount may be higher or lower.
Reviewing the illustration document with all of this information should help you to understand all of the important details about your mortgage so that you can make an informed decision about whether or not it’s the right choice for you.
What Isn’t Included?
Everyone knows that buying bricks and mortar is expensive. Whilst illustrations do provide the breakdown of fees associated with your loan amount, there are plenty of costs associated with buying a property that isn’t included in your mortgage illustration.
The following house purchase costs will not be included in your mortgage illustration:
- Stamp duty
- Solicitors fees
- Building survey fee
- Valuation fee
- Mortgage Insurance
- Buildings Insurance
- Contents Insurance
- Mortgage Brokers Fee
It’s important to be aware of these additional costs so that you can keep to your budget and get a true understanding of the overall cost of buying your home.
What If My Circumstances Change?
It’s important to remember that the illustration is based on the information that you provided during the mortgage application process. If any of this changes, then the illustration may no longer be accurate, meaning you shouldn’t rely on it.
Applying for a mortgage and getting approved can take weeks and sometimes months from start to finish which means that a lot can happen during this time that might mean that your financial circumstances have changed.
For example, if you’re self-employed and your income fluctuates from month to month, then this will affect the accuracy of the illustration. Or if you were employed when you applied but you’re now unemployed or self-employed, this will impact the lender’s consideration of your mortgage application.
You should always best speak to your dedicated mortgage advisor or lender in the first instance if your financial circumstances change between applying for your mortgage, receiving your mortgage illustration, and being approved for your mortgage so that you can be provided with an updated illustration.
What Is the Purpose of a Mortgage Illustration?
The purpose of a mortgage illustration is to give you a clear overview of all of the important details about your home loan and the costs included in a mortgage so that you can make an informed decision about whether or not to proceed.
They are useful for buyers who are trying to determine how much they can afford to borrow as they can help you to understand how your monthly payments will be affected by the interest rate, loan term, and other factors.
You should think of the document as a useful tool to be used for illustrative purposes, not a guarantee, as it will show all of the potential costs and benefits associated with taking out a mortgage loan, and just like a quote, you can then choose to proceed with or not.
How Many Should I Get?
If you’re shopping around for a mortgage, you may be wondering if you can get more than one mortgage illustration. The answer is yes, you can approach different lenders, who can each provide a mortgage illustration when looking into home financing. This means that you can compare different options and choose the one that’s right for you.
Keep in mind that each illustration will be based on different assumptions about things like the size of your down payment and the interest rate you’ll qualify for, so make sure to ask your lender how they came up with the numbers in each case and that you’re comparing like for like.
With a little research, you’ll be able to find the mortgage that best suits your needs before proceeding with your chosen lender.
Does Everyone Need A Mortgage Illustration?
Not everyone needs a mortgage illustration. For example, if you are already familiar with the terms of your mortgage offer, or if you do not plan to take out a mortgage, then there is no need to get one. Regardless of whether you use it or not, if you are applying for a mortgage product, your lender must provide you with a mortgage illustration by law.
While not everyone needs a mortgage illustration, they are primarily targeted at borrowers who need a helpful tool to compare different loan offers. By doing so, a home mover will be able to make an informed decision about which loan is best for their needs.
Should I Get One When Remortgaging?
Yes, just like when you’re getting a first mortgage, mortgage illustrations are an important part of the remortgaging process too. They provide potential borrowers with an estimate of the monthly repayments they would need to make if they took out a mortgage with a particular lender. When remortgaging, be sure to request a mortgage illustration from your lender so that you can make an informed decision about your new loan.
How Do Mortgage Brokers Help With Mortgage Illustrations?
There are a few different ways to get a mortgage illustration. One option is for you to work directly with a lender to get an estimate or you can use a mortgage broker or mortgage advisor. Working with a dedicated mortgage advisor is a great option, especially if it’s your first mortgage application, or you’re unfamiliar with the process.
Mortgage brokers are experts in the field and can help you to find the best mortgage types for your needs based on your current financial circumstances. They also have access to software that can create accurate illustrations quickly and easily. Their service aims to gives you a comprehensive mortgage recommendation based on your personal and financial situation that can help you to understand what you can afford and how much you will need to pay each month
Mortgage brokers can also provide free consultation sessions bout different types of mortgages, such as fixed-rate or adjustable-rate mortgages, and help borrowers like you find the best mortgage for your unique financial situation and needs. Most advisors will offer a free mortgage appointment to discuss your borrowing needs and to get a clear picture of your lending needs so that they can offer the most suitable mortgage product to you.
What Stage In Buying Process Should I Get An Illustration?
With so many different stages in the process of purchasing a house or other kind of property, it can be difficult to keep track of when everything that needs to be done.
A mortgage illustration fits into the overall timeline after you’ve had an offer accepted on a property and before your formal mortgage application is submitted to your lender.
Once you have read through the mortgage illustration carefully and are sure that you understand all the terms and conditions involved, you can move forward with your mortgage application. If you have any questions about the content in the document, you should ask your mortgage lender or advisor for clarification.
If you’re ready to discuss your mortgage needs, there are plenty of lenders or brokers offering a free mortgage appointment online to get the ball rollings.
Does My Mortgage Illustration Mean My Mortgage Is Approved?
If you’re wondering ‘ does an illustration guarantee me a mortgage’?, we can clear that up here. A mortgage illustration is not a guarantee that you will be offered a mortgage, but it can give you an idea of what you might be able to borrow. To get a mortgage application approved, you will need to meet the lender’s criteria, which may include having a good credit rating and being able to provide proof of your income and deposit amount.
While your mortgage illustration is a good starting point, it’s not a guarantee that you’ll be approved for a loan. Your mortgage illustration is based on the information you provided to the lender, including your income, debts, and credit score. The lender will also consider other factors, such as your employment history and current financial situation. If everything looks good though, then you have a good chance of being approved for a loan but if there are any red flags, the lender may require additional information or deny your loan application.
A Good Tool But Not A Guarentee
So while your mortgage illustration is a helpful tool, it’s not a guarantee that you’ll be approved for a loan. You can improve your chances of being approved for a mortgage first time by working with an approved mortgage broker. Their services mean that you can be confident that you will be approved as it’s in their interests to present you with lenders that are likely to approve your mortgage application based on the financial information that you have provided.
Your mortgage is not approved until the full application process has been completed, the mortgage completes, and your lender confirms to you in writing that you have been approved.
Are Mortgage In Principles And Mortgage Illustrations The Same Thing?
If you’re thinking of applying for a mortgage, you may have come across the terms ‘mortgage illustration’ and ‘agreement in principle. Both are important documents in the mortgage application process, but they are not the same thing.
A mortgage illustration is a document that gives you an idea of how much your monthly repayments would be, based on the amount you want to borrow and the interest rate. It also shows any fees that might be due upfront such as valuation fees, arrangement fees, and legal fees.
An agreement in principle is a document that shows that a lender is willing to lend you a certain amount of money, subject to certain conditions being met. It’s important to remember that an agreement in principle is not a guarantee that you will be offered a mortgage – it’s simply an indication that the lender is willing to consider your application.
If you’re applying for a mortgage, you will need both a mortgage illustration and an agreement in principle.
Are Mortgage Illustrations Required By Law?
Lenders are required by law to provide a mortgage illustration to any customer who applies for a mortgage. Mortgage brokers are also required to provide mortgage illustrations to their customers when recommending particular mortgage products to you.
Anyone providing financial advice or loans should be authorized and regulated by appropriate professional bodies in the UK. The Financial Conduct Authority (FCA) regulates mortgages in the UK. One of the key rules is that lenders must assess whether a customer can afford to repay their mortgage before they lend them the money. This assessment is known as a ‘credit check’. Lenders must also provide information about financial products – including mortgages – in a way that is clear, fair, and not misleading.
The Financial Ombudsman Service (FOS) is an independent body that deals with complaints about financial services firms, including banks and building societies. If you have a complaint about your lender or broker, you can contact the FOS for free advice and help with resolving your issue.
When choosing a lender or mortgage advisor to work with when buying a property, you should always check that they are regulated by the financial conduct authority to ensure you are protected should anything go wrong.
Summary
A mortgage illustration is a document that provides an estimate of the monthly repayments you’ll make on your mortgage, based on the information you provided during the application process which will reflect your personal circumstances.
Regardless of if you’re interested in a fixed term, tracker, or variable rate mortgage, the illustration will also show other main details about your mortgage, such as the mortgage amount, interest rate, loan term, and any fees or charges that are included. It’s important to remember that the illustration is only an estimate, and your actual monthly repayments and the total cost may be different.
If you’re offered a mortgage with terms that are different from what was shown in the illustration, make sure to ask for a revised illustration so that you can see how the new terms will affect your monthly repayments.
This article is for general information only and is not intended to be advice for your specific situation. You should always seek personalised professional financial advice when taking out a mortgage.