A Key Facts Illustration (KFI) is a document used in the UK mortgage market to provide prospective borrowers with detailed and standardized information about a mortgage product. The KFI ensures that borrowers can understand the key features, costs, and risks associated with a mortgage, enabling them to make informed comparisons and decisions.
Contents of a Key Facts Illustration (KFI)
The KFI contains several sections, each providing specific information about the mortgage offer:
1. About This Illustration
- Purpose of the Document: Explains that the KFI provides essential information to help compare different mortgage products.
- Validity: Specifies how long the illustration is valid.
2. Description of the Mortgage
- Lender’s Name: The name of the financial institution offering the mortgage.
- Mortgage Product: The type of mortgage (e.g., fixed-rate, tracker, variable-rate).
3. Loan Details
- Loan Amount: The total amount of money being borrowed.
- Term of the Loan: The duration over which the loan will be repaid.
- Purpose of the Loan: Whether the loan is for a house purchase, remortgage, etc.
4. Interest Rate and Repayments
- Initial Interest Rate: The interest rate at the start of the mortgage term.
- Subsequent Interest Rates: Details about any changes in the interest rate over time, including when and how it may change.
- Monthly Repayments: The amount the borrower will pay each month initially and after any changes in the interest rate.
- Total Amount Repayable: The total amount the borrower will pay over the loan term, including interest and fees.
5. Additional Costs
- Fees and Charges: Breakdown of all fees and charges associated with the mortgage, such as arrangement fees, legal fees, and valuation fees.
- Early Repayment Charges: Information about any penalties for repaying the mortgage early.
6. Insurance
- Insurance Requirements: Details of any insurance that the borrower is required to have, such as buildings insurance or life insurance.
- Optional Insurance: Information on any optional insurance products offered or recommended.
7. Risks
- Key Risks: A summary of the main risks associated with the mortgage, such as potential increases in interest rates, the risk of negative equity, or the possibility of losing the home if repayments are not made.
8. Other Features
- Flexibility Options: Details of any flexible features, such as the ability to make overpayments, underpayments, or take payment holidays.
- Portability: Information on whether the mortgage can be transferred to a new property if the borrower moves.
9. What Happens if You Do Not Meet Your Repayments?
- Consequences of Non-Payment: Explanation of the consequences if the borrower fails to make mortgage payments, including the risk of repossession.
10. Illustrative Example
- Personalized Example: An example calculation based on the borrower’s specific circumstances, illustrating how the mortgage will work in practice.
11. Overall Cost for Comparison
- Annual Percentage Rate of Charge (APRC): The overall cost of the mortgage expressed as an annual percentage, which helps in comparing different mortgage offers.
12. Next Steps
- Application Process: Information on how to proceed with the mortgage application.
- Contact Details: Details of whom to contact for further information or to proceed with the application.
Importance of the KFI
- Transparency: The KFI provides clear and comprehensive information, ensuring that borrowers understand the key aspects of the mortgage.
- Comparability: The standardized format allows borrowers to easily compare different mortgage products from various lenders.
Informed Decision-Making: By detailing costs, features, and risks, the KFI helps borrowers make well-informed decisions regarding their mortgage options.
- Consumer Protection: Providing a KFI is a regulatory requirement, ensuring that lenders disclose all necessary information and protect the rights of borrowers.
Differences Between KFI and ESIS
With the introduction of the European Standardised Information Sheet (ESIS) in 2016, the KFI has been largely replaced. However, understanding both can be beneficial:
- KFI: Focuses on providing detailed information tailored to UK regulations. It was the standard document prior to the introduction of the ESIS.
- ESIS: A standardized EU-wide document that offers consistency across European countries, making it easier for borrowers to compare mortgage products within the EU.
Conclusion
The Key Facts Illustration (KFI) is a vital document in the UK mortgage process, providing borrowers with detailed and standardized information about mortgage products. While largely replaced by the ESIS, the KFI still represents a significant aspect of mortgage transparency and comparability. By understanding the contents of the KFI, borrowers can make informed decisions, compare mortgage offers effectively, and navigate the mortgage market with greater confidence.