MCOB 12.3 Early repayment charges: regulated mortgage contracts2
Early repayment charges to be expressed as cash and to be reasonable
A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, an early repayment charge other than one that is:
- (1)
able to be expressed as a cash value; and
- (2)
a reasonable pre-estimate of the costs as a result of the customer repaying the amount due under the regulated mortgage contract before the contract has terminated.
A firm can choose the method it employs for calculating early repayment charges in accordance with MCOB 12.3.1 R. A firm should not use the 'Rule of 78' (as contained in Schedule 2 of the Consumer Credit (Rebate on Early Settlement) Regulations 1983), which is not appropriate as it effectively overstates the cost to the mortgage lender.
A firm may calculate the same level of early repayment charge for all regulated mortgage contracts of a similar type (for example a tranche of regulated mortgage contracts offering a particular fixed rate of interest), rather than on the basis of the individual regulated mortgage contract with the particular customer.
Early repayment charges to be disclosed in illustrations
Before:
- (1)
entering into a regulated mortgage contract with a customer; or
- (2)
making a further advance on an existing regulated mortgage contract; or
- (3)
changing all or part of a regulated mortgage contract from one interest rate to another;1a firm must disclose to the customer:
- (a)
in the illustration provided in accordance with MCOB 5, MCOB 7.6.7 R, MCOB 7.6.18 R, MCOB 7.6.22 R, MCOB 7.6.31 R, or MCOB 9; and
- (b)
in the illustration provided as part of the offer document in accordance with MCOB 6.4.1 R(1) and MCOB 9.5;
the maximum amount payable as an early repayment charge in respect of that regulated mortgage contract, if an early repayment charge applies.
- (a)