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MCOB 12.3 Early repayment charges: regulated mortgage contracts2

Early repayment charges to be expressed as cash and to be reasonable

MCOB 12.3.1R

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. (1)

    able to be expressed as a cash value; and

  2. (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.

MCOB 12.3.2G

A firm can choose the method it employs for calculating early repayment charges in accordance with MCOB 12.3.1 R. A firm3 should not use the 'Rule of 78' , which is not appropriate as it effectively overstates the cost to the mortgage lender.

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MCOB 12.3.3G

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

MCOB 12.3.4R

Before:

  1. (1)

    entering into a regulated mortgage contract with a customer; or

  2. (2)

    making a further advance on an existing regulated mortgage contract; or

  3. (3)

    changing all or part of a regulated mortgage contract from one interest rate to another;1a firm must disclose to the customer:

    1. (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

    2. (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.

Early settlement charges on second charge regulated mortgage contracts

MCOB 12.3.5G

The effect of article 29 of the MCD Order is that various provisions of, or made under, the CCA continue to apply to “consumer credit back book mortgage contracts” (as defined in article 2 of the MCD Order). These include the5 Consumer Credit (Early Settlement) Regulations 2004, which5 continue to apply to a second charge regulated mortgage contract entered into before 21 March 2016 and to a legacy CCA mortgage contract5.

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