CeMAP MRT1 Affordability, Suitability, Risk & Mortgage Term question: assess under MCOB 4.7A.6R before recommending

CeMAP MRT1Affordability, Suitability, Risk & Mortgage Term

Tariq wants the lowest possible payment for the first two years and chooses a 2-year discount of 2% off the lender's standard variable rate. Which risk must the adviser assess under MCOB 4.7A.6R before recommending it?

A That the discount may be withdrawn if Bank Rate falls, so his payment would then stay the same
B That the lender may convert the mortgage to interest-only when the discount ends, lowering his payments
C That he cannot overpay during a discount period, because overpayments are banned on discounted rates
D That his payment can rise during the discount if the variable rate rises, and jump again when it ends

Show the answer and explanation

Answer: D. That his payment can rise during the discount if the variable rate rises, and jump again when it ends

MCOB 4.7A.6R(5) asks whether minimising payments at the outset is appropriate, which means checking the customer can cope with higher payments later. A discount is off a variable rate, so the payment rises if the lender's rate rises during the deal, and rises again when the discount ends. Lenders do not convert loans to interest-only at reversion, and overpayment terms are product-specific rather than banned.

Common mistake

Treating a discounted rate as if the payment were fixed for the discount period.

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