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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 12.3.1RRP

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 12.3.2GRP

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.

MCOB 12.3.3GRP

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 12.3.4RRP


  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.