Split mortgage isn't my favourite

by Ed Bowsher on 26 April 2010  |  0 comments
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HSBC's new Split Loan Mortgage will appeal to borrowers who can't decide whether to go for ultra-low trackers or the security of a fixed-rate deal.

HSBC has launched a new 'Split Loan Mortgage.' If you can't decide whether you want a fixed-rate deal or a tracker, this could be the deal for you. It allows you to put some of the mortgage on a fixed rate and some on a tracker. This table explains how it works:

 Split rates at 70% LTV                                                               Split rates at 80% LTV

If you have a 30% deposit and only fix 25% of the loan, you'll pay a very attractive 2.49% rate. What's more, you can overpay the tracker element of the loan by as much as you like.

However, this isn't a perfect mortgage. The introductory deal will expire in two years' time and there's a decent chance that interest rates will be much higher by then. So you could end up needing to remortgage at a rotten time.

Some borrowers may prefer to go for the security of a five-year fixed rate deal. In fact, if I was looking for a mortgage right now, I'd go for Co-op's five year fix at 4.49%. I'd be happy with the rate and I'd get a good night's sleep for the next five years.

An alternative approach would be to go for a Split Loan on the basis that you'll switch your mortgage early if interest rates start to rise rapidly. Trouble is, you'd have to pay an exit fee on the fixed element of the loan.

So you might prefer HSBC's Life Time Tracker Special mortgage. Like the Split Loan, it has a 2.49% rate, but if rates start to rise, you can bail out immediately without penalty and switch to a fixed rate deal.