LIBF CeMAP (Certificate in Mortgage Advice and Practice) — All Questions

A borrower adds a £999 arrangement fee to the mortgage advance rather than paying it upfront. The consequence is that:

• a.the arrangement fee is automatically waived by the lender in full
• b.the fee is converted into a cashback and paid back to the borrower
• c.interest will be charged on the fee over the term, increasing the total cost✓
• d.the mortgage's APRC falls because the upfront cost has been avoided, in line with the lender's normal administrative practice

Adding a fee to the loan means the borrower pays interest on it for the life of the mortgage (unless repaid sooner), so although upfront cost is avoided the total cost rises. This is why comparing deals on the APRC and total-cost basis is important.

A higher lending charge (HLC), sometimes applied on high-LTV loans, is designed to:

• a.insure the lender against loss if the borrower defaults and the sale proceeds fall short✓
• b.protect the borrower's income if they lose their job during the mortgage, and this remains the position for the whole of the mortgage term
• c.reduce the interest rate the borrower is charged on the mortgage
• d.pay the borrower's legal and conveyancing fees on the purchase

An HLC (historically a mortgage indemnity guarantee) funds insurance that protects the lender, not the borrower, against a shortfall if a high-LTV property has to be sold for less than the outstanding debt. The borrower pays for it but is not the beneficiary and remains liable for any shortfall.

The APRC quoted on an ESIS is most useful to a borrower because it:

• a.is calculated on the interest alone and excludes all fees and charges, as a standard part of the way the arrangement operates
• b.fixes the mortgage interest rate for the full term of the loan
• c.allows different mortgage deals to be compared on the total cost over the whole term✓
• d.shows only the initial promotional rate that applies at the start

The Annual Percentage Rate of Charge expresses interest plus mandatory charges as one yearly percentage over the full term, assuming the reversion rate applies after any initial deal, enabling like-for-like comparison. A low initial rate with high fees can still carry a high APRC.

The Mortgage Credit Directive requires the ESIS to show a second APRC that illustrates the effect of:

• a.the stamp duty land tax that will be payable on the purchase
• b.interest rates rising to a higher level✓
• c.the estate agent's commission on the sale of the property
• d.a fall in the value of the property during the mortgage term

In addition to the main APRC, the MCD requires a second APRC showing the impact of a higher interest rate (based on the highest rate over a look-back period or a prescribed alternative), warning borrowers that variable costs could be higher. It appears on the ESIS under MCOB 5A.

An early repayment charge (ERC) is typically payable when a borrower:

• a.ports the mortgage to a new property, in every single case without exception
• b.repays or overpays beyond any allowance during an incentive or tie-in period✓
• c.makes their normal contractual monthly payment on the due date
• d.arranges the buildings insurance required as a condition of the loan

ERCs compensate the lender for early repayment during a fixed, discounted or other incentive period, often as a percentage of the amount repaid and sometimes tapering over the years. Most deals allow limited penalty-free overpayments (commonly up to 10% a year), and porting can avoid the charge.

A borrower repays a £160,000 fixed-rate mortgage during a period carrying a 3% early repayment charge. The ERC is:

• a.£1,600
• b.£3,000
• c.£48,000
• d.£4,800✓

3% x 160,000 = 4,800. ERCs are commonly a percentage of the balance repaid and can be substantial, so the adviser must factor them into any remortgage or early-repayment recommendation.

A 'tapered' early repayment charge means that the charge:

• a.stays exactly the same throughout the entire mortgage term
• b.increases every year over the whole life of the mortgage loan
• c.reduces year by year over the incentive period✓
• d.applies only after the mortgage has been fully redeemed

A tapered ERC steps down over the incentive period, for example 5% in year one, 4% in year two and so on, so the cost of early repayment falls as the deal progresses. The borrower should still check the exact percentages and any penalty-free overpayment allowance.

An early repayment charge that continues to apply even after the initial fixed or discounted period has ended is known as an:

• a.'overhang' or extended tie-in✓
• b.annual rest, calculated once each year
• c.offset facility that reduces the borrower's interest
• d.overpayment reserve that can be drawn back later

An 'overhang' locks the borrower in beyond the end of the incentive rate, meaning they face an ERC while paying the (often higher) reversion rate. Advisers should flag overhangs because they reduce the borrower's flexibility to remortgage when the deal ends.

A 'portable' mortgage allows the borrower to:

• a.avoid all future affordability checks for the rest of the term
• b.fix the mortgage interest rate permanently for the whole term
• c.transfer the existing mortgage deal to a new property when they move home✓
• d.change to a completely different lender without making any application, and this remains the position for the whole of the mortgage term

Portability lets a borrower carry their current mortgage product to a new property, usually subject to a fresh affordability assessment and valuation, which can avoid an ERC on the existing deal. Any additional borrowing for a more expensive home is typically arranged as a separate sub-account.

A borrower wants to raise extra money for home improvements from their existing lender without remortgaging elsewhere. This is called a:

• a.further advance✓
• b.second charge taken out with a different lender entirely
• c.payment holiday agreed under the lender's arrears procedures
• d.porting arrangement to move the loan to a new property

A further advance is additional borrowing from the current lender secured on the same property, often on a different rate from the main loan. The lender will reassess affordability and the LTV, and the advance ranks alongside the existing charge held by that lender.

A second-charge mortgage is one that:

• a.is never regulated by the FCA under any circumstances
• b.is a further loan secured behind an existing first-charge mortgage on the same property✓
• c.completely replaces the borrower's existing first mortgage
• d.always carries a lower interest rate than the first-charge mortgage, as a standard part of the way the arrangement operates

A second-charge mortgage sits behind the first charge in priority, so the first lender is repaid first from any sale. Because of the higher risk, rates are usually higher. Since the Mortgage Credit Directive, regulated second charges fall under MCOB.

Most buy-to-let mortgages taken out for genuine business purposes are:

• a.regulated by the FCA in exactly the same way as residential mortgages
• b.prohibited outright by the FCA's conduct of business rules
• c.outside the definition of a regulated mortgage contract✓
• d.required by law to be arranged on an interest-only basis

A pure business buy-to-let is generally not a regulated mortgage contract, because the property is not for the borrower's own occupation. However, 'consumer buy-to-let' (for example an 'accidental landlord') is regulated, and lenders still apply their own affordability and rental-cover criteria.

'Consumer buy-to-let' lending is regulated because it typically involves:

• a.a large professional property portfolio held by an experienced investor, and this remains the position for the whole of the mortgage term
• b.the purchase of commercial premises rather than residential property
• c.lending made to a limited company rather than to an individual
• d.a borrower who did not actively choose to become a landlord, such as an 'accidental' landlord✓

Consumer buy-to-let applies where the borrower is not acting wholly for business purposes, classically someone who inherited a property or is letting a former home. The MCD brought this within regulation, requiring firms to hold the appropriate permission and follow conduct rules.

A buy-to-let lender requires rental income to cover at least 125% of the monthly mortgage interest. If the monthly interest is £800, the minimum monthly rent required is:

• a.£925
• b.£1,000✓
• c.£640
• d.£1,250

125% x 800 = 1,000. The interest coverage ratio (ICR) ensures rent comfortably exceeds mortgage interest, providing a buffer for voids and costs. Lenders often stress the interest at a notional rate higher than the pay rate when applying the ICR.

Buy-to-let mortgages are commonly arranged on an interest-only basis because:

• a.interest-only buy-to-let lending carries no risk to the landlord at all
• b.landlords are legally required to use an interest-only basis for lettings, in line with the lender's normal administrative practice
• c.it maximises monthly rental profit, with the capital repaid by eventually selling the property✓
• d.repayment mortgages are never available for any let residential property

Interest-only keeps monthly costs low, improving rental yield and cash flow, with the expectation that the property (or its sale) repays the capital. It carries the usual interest-only risk that the sale value may not cover the loan, and landlords also face tax and void-period considerations.

Under a government equity loan scheme such as Help to Buy, the equity loan is repaid as:

• a.the same percentage of the property's value at the time it is repaid or the home is sold✓
• b.a fixed cash sum, regardless of what the property is worth at sale, according to the relevant contract and policy documentation
• c.a deduction taken directly from the borrower's pension lump sum
• d.an amount that is only ever payable if the property falls in value

An equity loan takes a percentage stake in the property, so the amount repaid rises and falls with its value; for example a 20% equity loan is repaid as 20% of the eventual sale price. Interest ('loan fees') typically becomes payable after an initial interest-free period.

Under a shared-ownership scheme, the buyer:

• a.is required to buy the remaining share within the first twelve months, as a standard part of the way the arrangement operates
• b.rents the entire property with no element of ownership at all
• c.buys a share of the property and pays rent on the remainder, usually to a housing association✓
• d.owns the whole of the property outright from the very first day

Shared ownership lets a buyer purchase a share (commonly 25%-75%) with a mortgage and pay subsidised rent on the part they do not own. They can later 'staircase' by buying further shares, and most shared-ownership homes are leasehold.

In a shared-ownership property, 'staircasing' refers to:

• a.moving from a smaller property to a larger one within the scheme
• b.extending the length of the lease granted by the freeholder
• c.increasing the rent that is charged on the property each year
• d.buying additional shares in the property over time✓

Staircasing is the process of buying further shares in a shared-ownership home, increasing the owned percentage and reducing the rent payable. Reaching 100% usually removes the rent, though some newer leases restrict staircasing to a maximum share.

Under a guarantor mortgage, the guarantor:

• a.can never be pursued for the debt under any circumstances
• b.becomes the sole legal owner of the mortgaged property
• c.agrees to be liable for the mortgage payments if the borrower fails to pay✓
• d.receives all of the rental income generated by the property, as a standard part of the way the arrangement operates

A guarantor (often a parent) promises to meet the payments, or the shortfall, if the borrower defaults, which can help a borrower with limited income or deposit. The guarantor takes on a real liability and should receive clear information and, ideally, independent legal advice.

A 'family springboard' or family-offset mortgage typically works by:

• a.the family member gifting the entire deposit to the borrower outright
• b.a family member's savings being held as security or offset against the loan for a set period✓
• c.the borrower renting the property from the family member for a fee
• d.the lender guaranteeing a fixed investment return to the family member, subject to the usual terms and conditions that apply

In these schemes a family member places savings with the lender as security (or to offset interest) for a defined period, helping the borrower access a higher LTV. The savings are returned, often with interest, provided the mortgage is kept up to date.

The Right to Buy scheme enables:

• a.any tenant at all to buy any property they wish at full market value
• b.landlords to compel their tenants to purchase the rented property
• c.eligible council or housing-association tenants to buy their home at a discount✓
• d.first-time buyers generally to purchase a home with no deposit at all, as a standard part of the way the arrangement operates

Right to Buy gives qualifying secure tenants the ability to purchase their rented home at a discount linked to how long they have been a tenant. Lenders treat the discount as the deposit/equity, and there are rules on repaying discount if the property is sold within a set period.

A first-time buyer using a Lifetime ISA (LISA) towards a deposit receives:

• a.a complete exemption from stamp duty on the purchase
• b.an interest-free mortgage from the government for the first five years
• c.a government bonus of 25% on contributions, within annual limits✓
• d.a guarantee that any mortgage application they make will be approved

The Lifetime ISA pays a 25% government bonus on savings (up to the annual contribution limit), which can be used towards a first home up to a set purchase-price cap, or otherwise for retirement. Withdrawing for other purposes generally triggers a withdrawal charge.

On a typical lifetime mortgage (equity release), the interest is usually:

• a.paid on the borrower's behalf by the government throughout the term
• b.added to the loan and 'rolled up', compounding until the borrower dies or moves into long-term care✓
• c.paid in full by the borrower every month, just like a normal mortgage, according to the relevant contract and policy documentation
• d.waived entirely by the lender so that no interest is ever charged

A lifetime mortgage lets older homeowners release equity with no required monthly payments; interest rolls up and compounds, so the debt grows over time and is repaid from the estate when the borrower dies or enters long-term care. Advice is mandatory and Equity Release Council products carry a no-negative-equity guarantee.

The 'no-negative-equity guarantee' on an equity-release plan meeting Equity Release Council standards ensures that the:

• a.amount repaid will never exceed the value of the property when it is sold✓
• b.property is guaranteed to rise in value over the life of the plan, according to the relevant contract and policy documentation
• c.borrower can release an unlimited amount from the property
• d.interest rate on the lifetime mortgage can never be changed

The no-negative-equity guarantee means the borrower's estate will never owe more than the property's sale value, so beneficiaries are not left with a debt even if the rolled-up interest is large. It is a key consumer protection standard for equity release.

Lifetime mortgages are generally available only to homeowners aged:

• a.18 or over
• b.30 or over
• c.21 or over
• d.55 or over✓

Lifetime mortgages are aimed at older homeowners, with a typical minimum age of 55 (some plans set it higher). The amount available usually increases with age, reflecting the shorter expected term over which interest will roll up.

A retirement interest-only (RIO) mortgage differs from a lifetime mortgage in that the borrower:

• a.never has to make any payment at all during their lifetime, subject to the usual terms and conditions that apply
• b.pays the interest each month, with the capital repaid on death or a move into long-term care✓
• c.must repay the whole capital within the first five years
• d.receives a government subsidy towards the monthly interest

With a RIO mortgage the borrower services the interest each month, so the balance does not roll up, and the capital is repaid when the house is sold on death or a move into care. Affordability of the interest payments is assessed, unlike a rolled-up lifetime mortgage.

A bridging loan is most suitable where a borrower needs to:

• a.cover a short-term gap, such as buying a new property before selling the existing one✓
• b.repay a mortgage over the longest possible term to cut monthly cost, whatever the borrower's own individual circumstances happen to be
• c.permanently finance a main residence over a twenty-five-year term
• d.make a long-term investment into a personal pension arrangement

Bridging finance is short-term, higher-cost lending used to 'bridge' a timing gap, for example completing a purchase before a sale completes, or buying at auction. Because it is expensive, a clear and realistic exit (repayment) route is essential.

A self-build mortgage typically releases funds:

• a.directly to the estate agent handling the onward sale
• b.in stages, as each phase of the build is begun or completed✓
• c.as a single lump sum at the very start of the project
• d.only after the property is fully built and then sold on, as a standard part of the way the arrangement operates

Self-build mortgages release money in tranches tied to build stages (either in arrears, after each stage, or in advance of it), matching cash to the construction programme. Lending is often based on the plot and projected value, with valuations at each stage.

'Let-to-buy' describes an arrangement where a borrower:

• a.lets out their current home and buys a new property to live in✓
• b.rents a property from a landlord with an option to buy it later
• c.sells their home to a lender and then rents it back from them
• d.buys a property purely as an investment to let it out to tenants

In a let-to-buy the borrower switches their existing residential mortgage to a buy-to-let and lets the old home, while taking a new residential mortgage on the property they move to. It involves two mortgages and additional considerations such as the extra-property stamp duty surcharge.

The key difference between a tracker rate and a discounted rate is that a:

• a.tracker follows a named external benchmark, while a discount is a margin off the lender's own SVR✓
• b.discount follows the Bank of England Bank Rate but a tracker does not
• c.tracker is a fixed rate whereas a discounted rate is a variable rate
• d.tracker and a discount always produce an identical pay rate for the borrower, according to the relevant contract and policy documentation

A tracker is contractually tied to an external benchmark such as the Bank of England Bank Rate plus a margin, so it moves transparently with that rate. A discount is a reduction off the lender's discretionary SVR, so the lender's decisions on the SVR determine the pay rate.

The 'reversion rate' on a mortgage is the rate that:

• a.is charged on any overpayments the borrower makes
• b.the loan moves to once the initial deal period ends✓
• c.applies during the initial fixed or discounted period only
• d.the borrower pays only if they miss a monthly payment

The reversion rate is the follow-on rate, usually the SVR or a tracker linked to Bank Rate, that applies after the initial incentive period ends. It is generally higher than the initial rate, which is why the APRC and reversion rate matter when comparing deals.

An offset mortgage can be particularly useful for a self-employed borrower who:

• a.wants a rate that is guaranteed to be fixed for the whole term, according to the relevant contract and policy documentation
• b.is trying to avoid arranging any buildings insurance cover
• c.has no savings and no spare cash available at any point
• d.sets aside money for future tax bills that can offset the mortgage until the tax is due✓

A self-employed borrower can hold money earmarked for future tax or VAT in the offset account, reducing mortgage interest while the funds remain available to pay the bill when due. This makes otherwise idle cash work against the mortgage without locking it away.

The main advantage of a fixed-rate mortgage for a budget-conscious borrower is that the:

• a.mortgage can never carry any form of early repayment charge
• b.rate will always fall automatically if the Bank of England Bank Rate falls
• c.payment is certain during the fixed period, which aids budgeting✓
• d.capital is repaid noticeably faster than on a variable-rate deal

A fixed rate gives payment certainty for the fixed term, protecting the borrower from rate rises and helping budgeting. The trade-off is that they will not benefit if rates fall, and fixed deals usually carry ERCs during the fixed period.

A 'capped and collared' mortgage means the interest rate can:

• a.be fixed at a single rate for the entire mortgage term
• b.move only within a band, between a floor (the collar) and a ceiling (the cap)✓
• c.track the Bank of England Bank Rate exactly at all times, and this remains the position for the whole of the mortgage term
• d.never change at all once the mortgage has completed

With a cap and collar the variable rate is confined to a range: it cannot rise above the cap nor fall below the collar. The borrower gains protection from large rises but gives up the benefit of falls below the collar.

Many fixed-rate mortgages allow the borrower to overpay each year, without an early repayment charge, up to:

• a.a set limit, commonly around 10% of the outstanding balance✓
• b.the value of one single monthly payment in the whole year
• c.nothing at all, as overpayments are never permitted during a fix
• d.100% of the outstanding balance at any time in the year

Lenders commonly permit penalty-free overpayments up to about 10% of the balance a year during a fixed deal; overpaying reduces the balance and interest, especially where interest is calculated daily. Exceeding the allowance during the tie-in usually triggers an ERC.

Extending a repayment mortgage from a 25-year to a 35-year term will generally:

• a.reduce the monthly payment but increase the total interest paid over the term✓
• b.have no effect at all on either the monthly cost or the total cost
• c.increase the monthly payment because more capital is repaid each month, and this remains the position for the whole of the mortgage term
• d.reduce the total amount of interest paid over the life of the loan

A longer term spreads the capital over more payments, lowering the monthly cost, but because interest is charged for longer the total paid over the life of the loan rises. Advisers must balance affordability now against overall cost and the risk of the term running into retirement.

A non-refundable fee paid to reserve a particular mortgage product, often smaller than the arrangement fee, is usually called a:

• a.booking or reservation fee✓
• b.higher lending charge applied on high-LTV loans
• c.procuration fee paid by the lender to the broker
• d.redemption fee charged when the mortgage is repaid

A booking (reservation) fee secures the specific deal and is generally non-refundable even if the application does not proceed, whereas a larger arrangement (product) fee can often be added to the loan. Both feed into the true cost shown by the APRC.

A procuration fee is a payment made by the:

• a.borrower to HM Revenue and Customs on completion
• b.borrower to the surveyor for carrying out the valuation, and this remains the position for the whole of the mortgage term
• c.lender to the intermediary for introducing the mortgage business✓
• d.intermediary back to the borrower as an incentive

A procuration (or 'proc') fee is commission paid by the lender to a mortgage intermediary for arranging the loan. It must be disclosed to the customer under MCOB, and the advice must remain suitable regardless of any difference in proc fees between lenders.

The 'redemption' of a mortgage means:

• a.switching the mortgage from a repayment to an interest-only basis, as it is set out in the mortgage offer document
• b.repaying the outstanding balance in full so the charge over the property is released✓
• c.missing a single monthly payment and falling into arrears
• d.taking an agreed payment holiday for a short period

Redemption is full repayment of the mortgage, after which the lender releases its legal charge and the borrower owns the property free of that loan. A redemption statement shows the exact figure, including interest to the redemption date and any early repayment charge.

A formal mortgage offer issued to a borrower will typically:

• a.remove the need for any valuation of the property to be carried out, subject to the usual terms and conditions that apply
• b.be valid only for a limited period, after which it may need to be renewed✓
• c.guarantee the future market value of the property being purchased
• d.remain valid indefinitely and never expire once it is issued

Mortgage offers are valid for a set period (often three to six months); if completion is delayed beyond it, the offer may lapse and require reassessment, particularly if circumstances or rates have changed. The offer sets out the binding terms of the loan.

A lender applies a 'retention' to a mortgage advance where:

• a.the property is newly built and needs no further checks at all
• b.the borrower has an excellent credit history and a large deposit, provided the account is otherwise kept up to date
• c.essential works are needed, so part of the loan is withheld until they are completed✓
• d.the borrower has specifically asked the lender for a cashback

A retention holds back part of the advance (for example pending essential repairs identified in the valuation), releasing it only when the works are done and confirmed. It protects the lender's security by ensuring the property reaches an acceptable condition.

Which of the following could be an acceptable repayment strategy for an interest-only residential mortgage?

• a.an expectation of winning a prize or competition in the future
• b.simply hoping that house prices will rise enough over the term
• c.relying on being able to remortgage the loan again indefinitely, for the full duration of the mortgage agreement
• d.a planned downsizing sale supported by substantial equity, where the lender accepts it✓

Some lenders accept 'sale of the mortgaged property' (downsizing) as a repayment strategy where there is sufficient equity and it is realistic. Under MCOB 11 the strategy must be credible and evidenced; vague hopes of price rises are not acceptable.

A mortgage with a 'reserve' or drawdown facility allows the borrower to:

• a.extend the length of the lease on a leasehold property
• b.avoid paying any interest on the amount that has been drawn down, provided the account is otherwise kept up to date
• c.withdraw further pre-agreed funds up to a limit without a new application✓
• d.change to a different lender automatically at any time

A drawdown or reserve facility sets an agreed borrowing limit from which the borrower can take further funds as needed, paying interest only on what is drawn. It offers flexibility for staged spending, such as home improvements, without repeated applications.

A 'green' mortgage typically rewards borrowers who:

• a.purchase or improve an energy-efficient home, for example with a better rate or cashback✓
• b.buy the most expensive property that they can possibly afford
• c.take the longest possible mortgage term available from the lender, and this remains the position for the whole of the mortgage term
• d.choose not to arrange any buildings insurance on the property

Green mortgages incentivise energy efficiency, for instance offering preferential rates or cashback for homes with a high EPC rating or for making qualifying improvements. They reflect lenders' growing focus on sustainability and lower running costs for borrowers.

A borrower with a very high loan-to-value mortgage (for example 95%) is more exposed to:

• a.an automatic exemption from affordability assessment
• b.negative equity if property values fall✓
• c.an unconditional right to port the mortgage at any time
• d.a guaranteed lower interest rate than other borrowers

With little equity, even a small fall in property value can leave the borrower owing more than the home is worth, known as negative equity, making it hard to move or remortgage. Higher-LTV loans also generally carry higher interest rates to reflect the greater risk to the lender.

In the FCA's mortgage rules, a 'payment shortfall' arises when the:

• a.borrower fails to make a payment due under the mortgage, so the account falls behind✓
• b.property is worth less than the outstanding mortgage balance
• c.borrower overpays and gets ahead of the agreed payment schedule, according to the relevant contract and policy documentation
• d.lender reduces its standard variable rate during the term

A payment shortfall (arrears) occurs when a payment due under the regulated mortgage is not made, putting the account behind. MCOB 13 governs how firms must handle such accounts, emphasising fair treatment and forbearance rather than immediate enforcement.

Under MCOB 13, once an account is in arrears the firm must provide the customer with certain information, including the FCA's arrears information sheet, within:

• a.six months of the account first falling behind
• b.three years, in line with the limitation period, as it is set out in the mortgage offer document
• c.24 hours of the first missed payment
• d.15 business days of becoming aware of the arrears✓

MCOB 13.4 requires the firm, as soon as possible and in any event within 15 business days of becoming aware of the payment shortfall, to provide the customer with the FCA's information sheet on arrears (and money-guidance contact details) plus specified information about the arrears and options.

MCOB's rules on charges for customers in arrears require that any such charges:

• a.must always be at least 10% of the outstanding balance, unless the borrower and lender later agree otherwise
• b.must be a reasonable estimate of the cost of the extra administration caused by the arrears✓
• c.may be set at any level the lender chooses to charge
• d.are automatically waived in every arrears case

Under MCOB the firm may only levy arrears charges that reasonably reflect the cost of the additional administration involved; it must not use them as a penalty or to profit from the customer's difficulty. Charges must also be applied fairly and not accumulate so as to worsen the position unfairly.

'Capitalising' arrears means the lender agrees to:

• a.begin repossession proceedings straight away without delay
• b.write off the arrears entirely so the customer owes nothing more, as it is set out in the mortgage offer document
• c.demand the whole of the arrears immediately in a single payment
• d.add the arrears to the outstanding balance, to be repaid over the remaining term✓

Capitalisation adds the accrued arrears to the mortgage balance so they are spread over the remaining term, raising the monthly payment slightly but clearing the shortfall. It is one forbearance option under MCOB 13 and should only be used where it is appropriate and sustainable for the customer.

Extending the mortgage term for a borrower in difficulty is a forbearance measure that:

• a.increases the monthly payment the borrower has to find, unless the borrower and lender later agree otherwise
• b.reduces the monthly payment but increases the total interest paid over the loan✓
• c.is expressly prohibited by MCOB in every case
• d.immediately clears all of the outstanding arrears

Lengthening the term spreads the balance over more payments, lowering the monthly amount to help affordability, but more interest is paid overall. MCOB 13 lists this among the options a firm should consider; it must ensure the arrangement is suitable and the customer understands the cost.