Here is a sample of commentary by a solicitor on a purchaser's mortgage offer:
Name of Lender ABC Mortgages ("Your Lender")
Account Number 909102474
Initial Amount £72,250.00
Term 25 Years
Current Variable Rate 6.24%
Initial Interest Rate 6.24%
You have decided to partially finance the purchase of your new property with the assistance of a mortgage provided by 'your Lender'. It is therefore essential that you have an understanding of the nature of a mortgage and the obligations you will have to your Lender.
Like any other loan the capital that you borrow must be paid back to the lender. The terms on which this is done will depend on the nature of the mortgage you have chosen which is detailed below. In all cases interest will be charged by the lender on the money outstanding from time to time and whilst this may be discounted or fixed for a period it is likely that the loan for the majority of its life will be subject to interest at the 'variable rate' of the lender. You should always be aware that the variable rate which is set by the lender can move up and down and in doing so will alter the monthly repayment you must make to your Lender. You should ensure that you have the necessary financial flexibility to meet increasing interest rates.
Unlike other forms of loan a mortgage is 'secured' in that if repayments are not paid the lender can apply for a Court Order for possession of the property and ultimately sell it with a view to recovering the loan and clearing the debt. Your lenders documentation including the application form that you completed will have incorporated a warning to the effect that 'failure to pay your mortgage may result in your losing your home'. Further the Mortgage Conditions will impose on you duties to your Lender to maintain and insure the property during the mortgage term. You must protect the property not only because it is your home but also because it is the security of your Lender for its loan.
You should also be aware that interest payments will continue to fall due to your lender even if you are unable to work due to illness, accident or loss of employment. Whilst your Lender will be sympathetic to problems of this nature, and you should certainly advise them of any difficulties you may have at the earliest opportunity, you should also consider insuring against circumstances such as these leading you into arrears. There are many policies on the market and you should consider the 'small print' very carefully to ensure that you gain the cover you need.
Finally, before we comment on the detail of your mortgage offer, you must understand that if you are purchasing the property jointly with a spouse or partner or as a commercial venture with someone else and both of you appear as borrowers on the mortgage offer you will be liable to your Lender for the loan in what is called a 'joint and several relationship'. This means that each of you will be liable for the full amount of the loan. Your Lender does not have to pursue you for one half only on default. It can look to either of you who might at that stage have income or other assets to meet the total amount due. Between yourselves there may be arrangements for contributions that you can pursue but these will not be of interest to your Lender and are a separate matter.
If you have experience of mortgages and already understand the implications of them then we apologise if our observations appear patronising. We can not assume knowledge and understanding and must ensure that all our clients appreciate the nature of the relationship that they are entering with their mortgage lender.
Your new mortgage is as follows:-Interest Only Mortgage
Under this type of mortgage you pay to the Lender only the interest on the amount borrowed. The original sum borrowed will therefore remain owing at the end of the term. It is wise therefore for you to consider carefully how that amount can be repaid at the end of the term. For example Endowment or Pension type policies may assist and we strongly advise you to take independent financial advice. If you are to have such a policy, it is advisable to ensure it is in force on completion or as soon thereafter as possible.
Should you have any queries concerning your monthly payments please speak with your Broker/Financial Adviser or the Lender. At the initial interest rate quoted the monthly repayment stated in the offer is £376.00. In addition you will also have payments to make to the product providers for any life or savings products you are linking to this mortgage.
Your property can probably be insured for its full reinstatement value on your lender's block policy. If, however, you are arranging your own buildings insurance, it is a condition of the mortgage offer that we provide your lender with full details of the policy and you should provide us with a copy of the current schedule of insurance as soon as possible.
Please note that your lender will not agree to release the advance monies until this condition has been satisfied.
Unless you have agreed with your Lender that it will effect such cover for you, you should do so as soon as possible. It may be of course, that you have already done so.
Points to Note
Your Lender will have forwarded to you a booklet of Mortgage Conditions which will be incorporated into the mortgage by reference. You are deemed to know the terms and conditions on which the money is lent and secured by the Mortgage Deed. If any points arise which you wish us to discuss with you please do not hesitate to raise them prior to exchange of Contracts.
- Your Lender will not permit you to create a second or subsequent mortgage on your property
without its consent.
- Your Lender will not permit you to let the property without its consent.
- Your Lender will not permit you to make substantial alterations to the property without its
- Your attention is drawn to the observations of the Lenders valuer in his report to the Lender.
Your Lender may withdraw or vary the mortgage offer at any time prior to completion should it for example discover inaccuracies on the mortgage application form. In those circumstances Contracts may well have been exchanged and the liabilities of the Contract will continue notwithstanding the withdrawal of the mortgage offer. The financial consequences of being in breach of Contract in such circumstances can be substantial.
In obtaining your mortgage offer you should have considered obtaining life insurance to protect any dependants on your death during the mortgage term. You should also consider the situation where you have a serious illness or accident which you survive but which means that you can no longer work. Will you be able to meet the monthly mortgage payments from that other income? If not you and your dependants may be in difficulty. Make sure that you have spoken with your chosen Financial Adviser about insurance products that may be available to you to cover this situation. If you are in employment you should also enquire as to the availability of insurance cover for loss of income to pay your mortgage if you are made redundant.
The documents relating to the property will comprise a title certificate plus miscellaneous other necessary or useful documents, such as planning documents. Some lenders do not wish to be burden with storing all the documents of title and therefore insist that we send them only the title certificate. The other documents, however, are probably very important and ought to be kept in a safe place to be available when the property is sold. If these documents are lost or accidentally destroyed you may be put to substantial expense in confirming the information contained in the documents or obtaining duplicates. If we or the lender send the miscellaneous documents to you, please ensure they are kept in a safe place.
Both during the transaction and afterwards the lender is entitled to demand access to the file relating to the transaction. This right is restricted to documents relating to your loan, but if you have signed a waiver form (as most lenders demand and often incorporated in the mortgage application form), the lender may be entitled to the whole file including letters written by you to me and notes we have taken of meetings or telephone conversations.
Please ensure that you read the Mortgage Conditions booklet which you have received in order that you may comply with your obligations under the mortgage. If you have not received those conditions or have any queries please do not hesitate to contact us.
You should ensure that before you proceed with this mortgage arrangement you have discussed every aspect of the transaction with your Broker/Financial Adviser. If you are not confident of any aspect of the transaction please contact us immediately and notify us not to advance matters on your behalf until your queries are satisfactorily resolved. You should ensure that you are fully aware and understand the nature of the mortgage and related products.
If there are any points which you wish to discuss with me please do not hesitate to contact me prior to exchange of Contracts.