Building Blocks

New

Homebuyers usually are at a loss when it comes to choosing the type of loan they want to take out when purchasing a house, particularly first time buyers. Fixed and variable loans have always left us in a spin, which one is better?

Now HSBC have launched a new type of loan designed to provide the best of both. The new “Split-loan” allow their customers to partially fix their mortgage while having the rest on a standard variable rate.

The new split loan allows customers to fix 25%, 50% or 75% of their loan for two years, leaving the remaining portion on a tracker. The ranges of these loans. A spokesperson for HSBC state that “The loan is designed to appeal to customers facing the dilemma of whether to keep tracking to preserve the flexibility to make overpayments, or benefit from the security of locking into the historically low fixed mortgage rates.”

However this loan may also be hard to understand, as with home equity release, the rate of the loan, depends highly on many factors like the value of the property, whether the repayment is interest only or capital repayment, the type of buyer, and how much of the loan is fixed.

If you borrowed £100,000 for a £150,000 fixed at 25% with a mortgage plan of capital repayment for 25 years, you would pay 2.49%. If you increase the fixed percentage to 50% you have to pay 2.69%, the split loan is still tailored to different buyers and properties like a standard loan.

The fixed and tracker loans will have the same interest rate when the loan is arranged, however the tracker loan’s interest rate could change before the mortgage loan is drawn down as this is linked to the Bank of England’s base rate. The rates given in the above example are the initial rates, the tracker rates will change during the course of the loan.

HSBC have an innovative split loans mortgage calculator so you can easily calculate how much interest you will pay and if the split loan mortgage is right for you. There is a non-refundable booking fee of £999.