How to Read a Mortgage OfferEasy

The rate is the number everybody reads and rarely the one that decides. The reversion, the fees, the term and the early repayment clause do most of the work.

4 min read · 785 words

Read it in this order

• An offer is a conditional contract with a deadline. It has three parts a reader tends to merge: the price now, the price afterwards, and the cost of changing your mind.
• The order that works: what is borrowed and over how long → the rate and how long it lasts → what happens when it ends → every fee → the early repayment charge → the conditions.
• This page explains how the document is built. It is not advice about borrowing, and nothing here says whether any particular loan is suitable.

1. The loan itself

• Amount, term and repayment type. Repayment loans retire the balance over the term; interest-only loans do not, and the plan for the capital is a separate arrangement the offer usually only names.
• Loan-to-value is the loan against the property's value. It decides which price band you are in, and it moves with the value as well as with the balance — which is why a fall in the value can change the options at the next reset without anything about you changing.
• The term is a lever with a long arm. A longer term lowers the payment and raises the total interest, and both effects are large. The mortgage calculator shows the trade in one screen.

2. The rate, and the date it stops

• The fixed or discounted period has an end date printed on it. That date, not the rate, is the most consequential number in the document.
• What it reverts to is usually a variable rate defined by reference to something else. Read the definition rather than the current value: the value moves, the definition does not.
• A tracker tracks a stated rate plus a margin, and the margin is fixed while the base is not. A discount is off the lender's own variable rate, which the lender sets.
• The payment shock at the reset is the difference between two payments you can both compute today. What happens when my fixed rate ends is the page on the mechanism.

3. Every fee, and where it is being paid from

• A product fee added to the loan is borrowed money and carries interest for the whole term unless it is repaid earlier. The same fee paid up front is a different transaction with the same name.
• Valuation, legal and telegraphic transfer fees are one-off and small enough to ignore individually and not collectively.
• The comparison rate spreads the fees over the whole term, which is the right calculation for somebody who keeps the loan to the end and the wrong one for somebody who will remortgage at the reset. Neither number is dishonest; they answer different questions.

4. The early repayment charge

• It is the price of changing your mind, usually a percentage of the balance that steps down each year of the incentive period.
• Check what triggers it. Overpaying above an allowance, moving house, and repaying in full are treated differently in different documents.
• The overpayment allowance is normally stated as a percentage of the balance per year, and any unused part usually does not carry forward.
• Portability is a permission, not a promise. Taking the loan to another property almost always requires the lender to approve the new property and the new circumstances at that time.

5. The conditions

• The offer is conditional — on the valuation, on documents, sometimes on works being completed. Unmet conditions are the ordinary reason an offer does not complete.
• It expires. The offer has a date after which it lapses, and an extension is a new decision by the lender rather than a formality.
• Ongoing obligations — insurance, keeping the property in repair, telling the lender about a letting — are contractual for the life of the loan and are the part nobody re-reads.

6. What the lender was actually deciding

• Two separate questions were asked: can this borrower pay, and what is recovered if they cannot. Why the bank refused a loan sets out both.
• Affordability was tested at a higher rate than the one offered, because the loan outlives the fixed period.
• The lender's own funding is why the rate exists at all: a fixed-rate loan is funded and hedged for that period, which is what the early repayment charge is compensating for.

What is missing on purpose

• What the reversion rate will be. It is defined, not forecast, and no document can say what it will be on a date years out.
• What another lender would offer. An offer describes one contract.
• What happens if circumstances change. The document sets out obligations rather than outcomes, and the conversation that follows a change is not written down anywhere in it.