Product appendices

Mortgage 

A mortgage is a loan secured against a property. ‘Secured’ means that if you do not keep up the payments, the lender can sell your home to get its money back.

Repayment options 

Interest only - The monthly payments cover only the interest on the loan. They do not pay off any of the capital. It is imperative that a separate repayment strategy is in place to provide a lump sum, to pay off the mortgage at the end of the term. It is the borrower’s responsibility to ensure they have enough money to repay the mortgage. 

Repayment mortgage or capital and interest loan - The repayments are designed to gradually pay off the amount owed as well as paying the interest charged on the loan. Providing all the agreed repayments are met on time, the loan will be fully paid off at the end of the mortgage term.

Rate types 

Discounted interest rate - The interest rate will be set at a discount to the recommended lender’s standard variable rate and will apply for a pre-determined period. The rate payable may increase or decrease as the lender’s standard variable rate itself increases or decreases.

BOE base rate tracker - The interest rate will be set at a rate which is a fixed percentage above the Bank of England Base Rate and so may rise or fall in line with the BoE base rate.

Capped interest rate - The interest rate will be capped; meaning the rate you pay cannot go above a specific capped rate. This ensures you know the maximum amount your monthly repayments could rise to during the deal period. Any fall in the basic rate of interest, below the capped rate, will still entitle you to a corresponding fall in your monthly repayments.

Capped and collared interest rate - The interest rate will be linked to the recommended lender’s standard variable rate but with a guarantee that it won’t go above a set level or ‘cap’ but equally won’t go below a set lower level or ‘collar’.

Fixed interest rate - The interest rate is guaranteed to remain unchanged for a pre-determined period. On expiry of the fixed rate period, the interest rate will usually change to the lender’s standard variable rate prevailing at that time.

Variable interest rate - The interest rate will vary in line with the standard interest charged by the recommended lender, meaning the interest rate payable can go up and down at the lender’s discretion and your repayments will change accordingly.

Standard variable rate - A type of mortgage interest rate that you are most likely to go onto after finishing an introductory fixed, tracker or discounted deal.

Mortgage types

Residential mortgage - A standard or conventional mortgage whereby the lender provides a loan on an agreed term and repayment basis and is secured on a residential property in which you intend to live as your main residence, often referred to as ‘owner occupied’ mortgages.

Self build mortgage - Arranged for the specific purpose of building a new house and, as such, offers a staged payment facility so as work progresses funds are released on pre-agreed terms to continue the build until completion. Thereafter standard mortgage terms were agreed on the finished property and valuation.

Buy to let mortgage - Arranged to buy property that you intended to let, in return for a rental income. It differs from a residential mortgage in that the mortgage terms take into consideration the income the property will produce, in deciding how much to lend. Buy to let mortgages are not regulated by the Financial Conduct Authority.

Changes to Tax Relief on Buy to Let finance costs - From April 2017, the Government will start to reduce the amount of tax relief on interest costs incurred by individual landlords. This will be phased in over four years and by 2020 the relief you’re able to claim on mortgage interest payments will be restricted to basic rate tax. These changes could mean higher Income Tax liabilities for individual landlords and a potential reduction in overall rental profit. For basic rate taxpayers it could also move them into a higher rate of tax. The changes do not affect residential property owned through a company. Therefore some landlords will elect to make Buy to Let investments through a limited company.

Your Openwork Adviser does not provide tax advice, therefore seeking independent tax advice from an accountant or a tax specialist is recommended. You can find further information on the changes to tax relief for residential landlords on the Gov.UK website.

Consumer buy to let mortgage - Arranged to buy property that you intended to let in return for a rental income. It differs from a residential mortgage in that the mortgage terms take into consideration the income the property will produce in deciding how much to lend. Consumer buy to let mortgages are regulated by the Financial Conduct Authority.

Bridging loan - A short-term loan to fund personal obligations until permanent financing is secured. The loan typically has a period of 12 months or less with relatively high interest rates and lending is backed by some form of collateral such as real estate.

Second charge mortgage / secured loan - A second charge mortgage is often referred to as second mortgage because it has secondary priority behind a main (or first charge) mortgage. It is a secured loan, which means the lender will use the borrower’s home as security.

Further advance - This is an additional loan made by the existing mortgage lender and secured by the first charge on the property. The further advance can be used for a variety of purposes (subject to the lender’s approval) such as home improvement, purchase of freehold or for personal purposes, such as debt consolidation.

Mortgage styles

Flexible mortgage - This style of mortgage has advantages over other types of mortgages. The interest rate applied is variable and calculated daily instead of annually, which means any capital repayment of the loan will immediately affect the interest charged on the outstanding balance. Regular overpayments or payment holidays are allowable and additional funds can be drawn from the account up to the original mortgage balance.

Current account facility - The mortgage operates through a current account and your normal cash flow will alter the outstanding amount which may save some interest.

Offset mortgage - The mortgage allows the balances of linked savings and current accounts to be offset against the outstanding loan, reducing the interest amount.

Will

If you have a will in place you may need to review it to take into account your Openwork adviser’s recommendation. If you have not yet made a will, the laws of intestacy will apply. This may result in your estate not being distributed as you wish.You consider setting up a will as a priority - please ask your Openwork adviser for guidance on how you can go about this.

Glossary

APR(C) - The APRC is the Annual Percentage Rate of Charge and is the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit. It is a numerical and comparable representation of the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit and equates, on an annual basis, to the present value of all future or existing commitments (draw downs, repayments and charges).

Arrangement fee - This is a fee paid to the lender in connection with certain types of mortgages. It is usually paid on completion, but sometimes with the application.

Binding offer – A lender must issue a ‘binding’ offer, which means that unless a material change occurs post offer, or the customer has provided inaccurate information, the lender cannot re-underwrite the case. Binding offers will only apply to regulated mortgages.

Cash back - A payment you receive from the lender when you take out a mortgage.

Conveyance - This is the deed by which a freehold unregistered title changes hands. If the property is leasehold and unregistered it is called an assignment. If the title is registered the deed is called a transfer.

Early redemption charges - This is a fee charged by a lender if you repay part, or all, of your mortgage or move your mortgage to another lender before the agreed date.

Foreign currency mortgage - A mortgage which is repayable in a currency other than the currency of the country in which the borrower is a resident.

Illustration / ESIS / KFI / KFI+ - The mortgage illustration. This is important as it provides you with information about your mortgage together with how much the advice will cost.

Loan to value (LTV) - The loan to value refers to the size of the mortgage as a percentage of the value of the property, e.g. a £90,000 mortgage on a house valued at £100,000 has an LTV of 90%.

Mortgage payment protection - If you cannot work due to an accident or sickness, or are made redundant, this policy will pay your mortgage for you.

Overpayments – Overpayments are additional payments made to reduce the outstanding mortgage balance. Some lenders may restrict the amount you can over pay without penalty. Please refer to the lender’s terms and conditions.

Portability - A term used to describe a mortgage product that can be transferred between properties when you move house.

Reflection period - A term used to describe a seven day right of reflection, triggered once the lender issues a mortgage offer.

Remortgage - This is the act of switching a mortgage to a new lender.

Shared equity - These schemes provide an equity loan to put towards buying a property. Where appropriate, it can be a quick way to boost the size of the deposit and increase the applicants’ chances of obtaining a good mortgage deal. There are both government backed schemes and also private sector schemes.

Shared ownership – Part buy / part rent schemes which are provided through housing associations. The applicant buys a share of the home (between 25% and 75%) and then pays rent on the remaining share.

Valuation fee - A fee payable to the lender to check what a property is worth and if it is suitable to lend a mortgage on.

  • Your mortgage offer forms the contract between you and your lender. It is important that you check the offer to make sure it is exactly what you require, before proceeding.
  • Property values and prices may fluctuate according to market conditions, and the value of your property may go down as well as up. In the future, this could mean that your mortgage loan exceeds the property's current market value (i.e. a negative equity situation).
  • It is a legal requirement to provide you with an illustration where advice has been provided, but the document is not a legally binding contract and does not oblige the lender to provide you with the mortgage described. It is strongly recommended that you do not enter into any binding agreement or commit yourself to any financial undertakings until you have received, read and understood a satisfactory offer letter. Your lender will issue you with a binding offer and you will be given a period of reflection to consider the offer.
  • The assessment of appropriateness to the recommended mortgage provider and product is based on your current circumstances and reasonably foreseeable changes to those.
  • Whilst your Openwork adviser has checked to ensure that your application will meet the lender’s known eligibility criteria, this does not guarantee acceptance as the lender themselves retains responsibility for assessing affordability of the immediate and future repayments.
  • Whilst your Openwork adviser has completed an assessment of your circumstances, to ensure that you appear to meet the lenders criteria, the lender has ultimate responsibility for assessing whether you can afford the loan and must also verify your income. Please be aware that the lender may therefore ask you for additional information in support of your application.
  • Your monthly repayments could be considerably higher should interest rates change.
  • Past levels of interest rates are no guarantee of future rates.
  • You may have to pay other fees or taxes in addition to those illustrated in my report.
  • Your home may be repossessed if you do not keep up the repayments on your mortgage.
  • The recommendations are based on current taxation, law and practice and the current legal and administrational framework and are based on your Openwork adviser’s current interpretation and understanding of those, all of which may be subject to change.
  • The value of your property is based on the valuer’s opinion rather than fact. If the value of your property drops, the loan amount may be greater than the property's value. You should also be aware property and land can be difficult to sell, so you may not be able to sell the property when you want to.
  • If details are given incorrectly, withheld, or are false in any way, then the lender will almost certainly reject your application. This will make it much more difficult, or even impossible, to apply to another lender and you could lose any fees already paid.
  • On the sale of a property purchased via a shared equity or shared ownership scheme, the proceeds are used to pay back your mortgage first and then the equity loan. If the property's value has gone up since you bought it, you may end up paying more back for the equity loan than you initially borrowed.
  • You should always maintain an emergency fund rather than relying on credit cards or other types of borrowing. This money must be in an easily accessible fund and of sufficient value to cover unexpected one off expenditure.
  • You will need to demonstrate to the lender, both now and again during the mortgage term, that you have in place a clearly understood and credible repayment strategy for an interest-only mortgage.
  • The suitability of your interest only repayment vehicle is not part of the advice provided in the Suitability Report your Openwork adviser gave you.
  • Unless you convert to a full repayment mortgage during the term, you cannot guarantee the mortgage will be repaid at the end. If you do intend to convert, the longer you delay could increase the total cost of the mortgage over the term.
  • If house prices fall there is a greater chance your home could be worth less than the amount you have borrowed.
  • If you are relying on an investment, or another type of repayment vehicle to repay your mortgage, it is your responsibility to ensure it remains on track, to provide the required sum at the end of the term. If you do not achieve the amount you require you will need to find the additional money or risk losing the property.

Product types

Level term assurance offers a cost effective means of obtaining life and / or critical illness cover over a specified term. The cover can remain level or you can choose an option, before the policy starts, for the sum assured to increase at regular intervals throughout the term. This is a useful option if the level of cover needs to keep pace with the effects of inflation. This form of insurance is often taken out in conjunction with an interest only mortgage or can be used to provide non mortgage related family protection. 

Decreasing term assurance offers a cost effective means of obtaining life and / or critical illness cover over a specified term. Unlike level term assurance, the level of cover reduces over the term of the contract. This form of insurance is often taken out in conjunction with a repayment mortgage. During the term of the mortgage the total amount owed to the lender decreases, as capital is repaid. Subject to the terms of the policy, the decreasing term assurance sum assured decreases in line with the amount owing. This is generally cheaper than its level term assurance equivalent. 

Family income benefit offers a cost effective means of obtaining life and / or critical illness cover over a specified term. This plan is designed to pay an income if the life assured was to pass away, or be diagnosed with a predetermined critical illness (if included), within the set term. The income is payable for the remainder of the policy term. The cover can remain level or you can choose an option before the policy starts, for the sum assured to increase at regular intervals throughout the term. This is a useful option if the level of cover needs to keep pace with the effects of inflation. This form of insurance is often taken out to provide non mortgage related family protection. 

Whole of Life assurance policies are designed to provide the policyholder with cover for their entire lifetime. The policies will only pay out once the policyholder dies. The policyholder's dependants will then receive a lump sum, usually tax-free. Depending on the individual policy, policyholders may have to continue contributing to the plan right up until they die, or they may be able to stop paying in once they reach a stated age, even though the cover continues until they die. This form of insurance is often taken out to provide for funeral costs in the event of death. 

Benefit types

Life cover is designed to provide a tax-free payment in the event that the life assured passes away within the agreed term of the policy.

Critical illness cover is designed to provide a tax-free payment in the event of a life assured being diagnosed with a predetermined critical illness within the agreed term of the policy.

Serious illness cover is designed to provide a tax-free lump sum if you're diagnosed with one of the conditions covered within the agreed term of the policy. The amount the insurer will pay is based on the severity of the condition.

Income protection cover is designed to pay a regular income should the insured be unable to work through accident or sickness within the agreed term of the policy.

MultiProtect cover is designed to pay a cash lump sum if the insured were to suffer from a specified accidental injury during the term of the policy.

Will

If you have a will in place you may need to review it to take into account your Openwork adviser’s recommendation. If you have not yet made a will, the laws of intestacy will apply. This may result in your estate not being distributed as you wish.You consider setting up a will as a priority - please ask your Openwork adviser for guidance on how you can go about this.

Glossary

Guaranteed premiums - The monthly premium paid for cover at the outset is unchanged and will remain fixed throughout the policy term. 

Indexation - Would help ensure that the sum assured maintains its capital worth against the effects of inflation. 

Last will and testament - A legal declaration by which a person names one or more persons to manage his or her estate and which provides for the distribution of his or her property upon death. 

Reviewable premiums - After a period of time, the insurer will review the monthly premium which may result in an alteration to the monthly amount paid. 

Terminal illness cover - This benefit allows for the sum assured to be paid on account of you suffering from an incurable terminal illness, resulting in life expectancy of less than 12 months. 

Total permanent disability benefit - Paid if you become totally and permanently disabled and you are unable to carry out your own, or any, occupation, or perform a certain number of recognised activities of daily living.

Trust - A trust will ensure that, in the unfortunate event of a claim the proceeds of the policy are paid both promptly and tax efficiently to your intended beneficiaries. Where recommended, it is extremely important that you complete and return the trust documents to the provider at your earliest convenience.

Waiver of premium - Should you be unable to work through ill health, your premiums will still be paid for you until the end of the policy term, a specified age or until you are able to return to work.

  • You must take reasonable care not to make a misrepresentation to the insurer. This means that all the answers you give and statements you make as part of your insurance application, including at renewal and when an amendment to your policy is required, must be honest and accurate. If you deliberately or carelessly misinform the insurers, this could mean that part of or all of a claim may not be paid.
  • Where a term plan has been selected, at no time during or at the end of the term does the policy provide a surrender or encashment value. If you stop paying the premiums the cover will cease. If the policy pays out cover will cease.
  • The recommendations are based on current taxation, law and practice and the legal and administrational framework and are based on your Openwork adviser’s current interpretation and understanding of those, all of which may be subject to change.
  • The premium amount you will pay for cover is subject to underwriting and may be higher than the amount illustrated.
  • The insurance company will not pay out if you do not provide them with any information they request, or if the information you do provide is incorrect.
  • Where waiver of premium protection has not been included, if you are unable to continue to pay the monthly premiums after suffering an accident or illness your plan will end and you will no longer be covered.
  • Where critical illness cover has been selected, the insurer will only pay out if you are diagnosed as suffering from a critical illness, which is covered by their plan. The amount payable in the event of a critical illness claim may be based on the severity of the medical condition. Some policies also make a partial payment of the total sum assured for certain, clearly specified, medical conditions which are less serious than those for which a full payment of the sum assured would be made. This means a claim for a medical condition may result in a payment which is less than the stated sum assured. However where this happens you will retain cover for the 'unused' portion of your sum assured . For further information please read the key features document. An option to reinstate the 'used' portion of your cover so that you retain your original sum insured may be available with some products and if this option has been included in your plan this will be confirmed in the illustration provided along with further details in the documentation sent to you by the insurance company.
  • Where critical illness benefit is integrated into the life assurance policy rather than additional to any life assurance cover, the provider will only pay out the sum assured on the first valid claim, for either critical illness or death. The policy will then cease.
  • The recommendations of your Openwork adviser are based only on your current circumstances and any reasonably foreseeable changes that you have made them aware of. If your circumstances have changed since your last discussion with them, or are likely to change, please contact them urgently as it may impact their advice.
  • You should always maintain an emergency fund rather than rely on credit cards or other types of borrowing. This money must be in an easily accessible fund and of sufficient value to cover unexpected one off expenditure.
  • It's important you regularly review your personal financial planning to ensure it remains suitable for you and meets your objectives. These may change with your circumstances and outlook and your Openwork adviser will be happy to review this with you at any time on your request.
  • Once your protection plan is set up you have a legal right to cancel should you change your mind. The period is generally 30 days with the specific cancellation period for your product(s) detailed in the documentation sent to you by the insurance company.