The mortgages illustration document (also known as an ESIS) can be overwhelming when provided as part of a normal mortgage application. There is a standard format required by European legislation but each lender can express certain information differently which can cause borrowers further confusion especially given the specialist nature of short term bridging.
The main sections of your short term mortgage illustration explained…
(Ideally have your illustration in front of you – this is generic information and should not be regarded as advice about your specific requirements)
Section 1 – Nice and simple. These are the details of the lender which is proposing to lend the money.
Section 2 – Again this is very clear – These are the details of the firm or person who is selling the loan and responsible for any advice.
Section 3 – This section explains the total amount being borrowed, the term, and details of the property offered as security. There are two points which borrowers are often confused by as follows.
The amount of the loan
Many borrowers get confused by this because the loan amount is much larger than the amount of money they will receive in hand. To help avoid confusion, remember a bridging loan is structured differently to a normal second charge loan or mortgage. In the case of bridging / short term finance, all of the interest payments and fees are often added to the loan at the outset.
So, for example, if someone was borrowing £100,000 over 12 months, the fees and 12 months payments might be added to the loan making the total loan at the outset nearer to £115,000.
That doesn’t mean the loan will cost £15,000. Remember if the loan is paid off before 12 months the borrower would get a rebate on the interest which has been added relating to the remaining term. Section 7 of the mortgage illustration explains this in more detail.
Note: The repayments don’t need to be added to the loan if you can demonstrate you can afford to pay them monthly. This will reduce the total interest you pay.
Total amount to be repaid
This is similar to the amount of the loan but also includes any separate charges borrowers will incur which are not added to the loan. These could include items such as valuation, lenders legal fees or other up front costs.
Section 4 – This section is fairly straight forward and explains the interest rate, any one off costs involved in arranging the loan, how or when the costs will be paid plus any monthly costs if applicable. If there are any additional charges when the loan is settled these are mentioned in this section and could be referred to as an early repayment charge, an exit fee or a security release fee. There are more details in section 9 of your illustration.
Section 5 and 6 – These explain how the interest is charged to the loan and will be repaid. If you are not planning on making any repayments during the loan term, this section makes it clear that the interest is being added to the loan and that you will repay the loan and interest at the end of the term. If you have opted to pay the interest on the loan monthly it will also be stated here. The illustrative table in Section 7 is a clearer indication of the costs and interest involved as some lenders do not explain this very thoroughly.
Section 7 – This is a good guide to how much is being borrowed in total and the interest charges. We recommend this table is read in conjunction with the following sections which should give a more complete picture.
Section 3 – The total amount being borrowed including any fees or interest added to the loan. Deduct the relevant costs in section 4 and the interest in section 7 to calculate the amount you will receive in hand
Section 4 – Check which fees are being added to the loan as these will reduce the amount you will receive in hand when the fees are deducted at completion.
Section 7 – This will show the amount of interest charged on the mortgage and the total mortgage. If settling early borrowers should get a rebate on each complete months interest which has been added to the loan.
Check the amount of interest in section 7 and any fees in section 4 which are being deducted from the loan to confirm how much you will get in hand.
Sections 8 onwards – these are all important but are generally worded in a simple and clear manner.
2 out of 3 borrowers get a lower rate than our representative example of a regulated secured loan below:
Mortgages and Remortgages
£80,000 over 240 months at an APRC OF 4.3% and a discounted variable annual interest rate for two years of 2.12% at £408.99 per month followed by 36 payments of £475.59 and 180 payments of £509.44. The total charge for credit is £39,873 which includes a £995 broker / processing fee and £125 application fee. Total repayable £119,873.
Secured / Second Charge Loans
£63,000 over 228 months at an APRC OF 6.1% and an annual interest rate of 5.39% (Fixed for five years – variable thereafter) would be £463.09 per month, total charge for credit is £42,584.52 which includes a £2,690 broker / processing fee. Total repayable £105,584.52.
£4,000 over 36 months at an APR OF 49.9% (fixed) and an annual interest rate of 49.9% would be £216.21, total charge for credit is £3,783.56. Total repayable £7,783.56.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
If you have been introduced to Promise Money by a third party / affiliate, Promise may pay them a share of any fees or commission it earns. Written terms available on request. Loans are subject to affordability status and available to UK residents aged 18 or over. Promise Money is a trading style of Promise Solutions Ltd. Promise Solutions is a broker offering products which represent the whole of the specialist second mortgage market and is authorised and regulated by the Financial Conduct Authority – Number 681423.
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