Section 7 - Are you comfortable with the risks?
What if interest rates go up?
As the initial mortgage rate is fixed, the maximum rate that will apply
until 31st December 2008 is 4.39%. The monthly payment at this rate
is £305.31. The mortgage rate can vary above this after 31st
After the fixed rate ends the monthly payments shown in this
illustration could be considerably different if interest rates change. For
example, when the fixed rate offer ends after x years for one
percentage point increase in interest rates your monthly payment will
increase around £29.98.
What if your income goes down?
You will still have to pay your mortgage if you lose your job or if illness
prevents you from working. Think about whether you could do this.
MAKE SURE YOU CAN AFFORD YOUR MORTGAGE IF YOUR
The FSA's information sheet 'You can afford your mortgage now but
what if…?' will help you consider the risks. You can get a free copy
from www.fsa.gov.uk/consumer, or by calling 0845 456 1555.
This section should set out how an increase in interest
rates will affect payments. For fixed rate mortgages,
stating the fixed interest rate and the payment at that
rate does not achieve this purpose. It is also
unnecessary as this information already appears in
sections 4 and 6. All that is required is a simple
statement that if interest rates increase during the fixed
rate period then payments will not change but may do
so after the fixed rate period. Use this link and access
the mock-up KFI for ‘Leapfrog’ for a compliant example
For variable rate capped and collared mortgages we
expect the capped and collared rates, and the
payments at those rates, to be illustrated in addition to
the above requirement. So, for example, suggested text
could be, ‘Your mortgage rate is variable, so increases
to interest rates will increase your mortgage payments.
However, the variable rate will not go above a ceilin