What is a half and half mortgage and how it can help
Can’t decide whether to fix your mortgage or pay a floating rate? It turns out you can do both.
A number of major lenders, including Barclays and HSBC, allow customers to take out a home loan known as a “half and half,” where one part is tied to a fixed rate and the other to a variable, such as a tracker.
However, these options are often only available through a broker who can view the option as part of a lender’s lending criteria.
Could splitting your mortgage into two loans help you manage rising interest rates and pay off your mortgage even faster?
Others offering the hybrid are TSB and Clydesdale. NatWest offers the option, but only for existing customers.
The option could come in handy for the 1.4 million people who will need to take out a new mortgage by the end of this year and are reluctant to stick with a fixed rate in the hope that they will fall in the coming years.
Currently, the two-year average fixed interest rate is 6.52 percent, according to Moneyfacts, and the five-year average interest rate has also fallen through the 6 percent mark as home loan rates continue to rise.
The average tracker percentage is 5.98 percent, according to Moneyfacts.
What is a half and half mortgage?
With a half mortgage – also known as a partial mortgage – you split the total home loan into two loans with separate characteristics.
Having two smaller loans instead of one larger one won’t affect your credit score, but it won’t insulate you from the effects of delinquent payments.
Nicholas Mendes, technical manager of mortgages at John Charcoal, says: ‘Lenders will assess affordability based on the general income of the client to ensure usability and avoid putting the mortgagee in trouble.
“But if you fall behind on part of the loan, since the lender has a burden on the security, they can still rest.”
An HSBC spokesman confirmed that under the bank’s system the two loans need not be equal as a 50/50 per cent split, it could be any other split, for example 40 per cent and 60 per cent, or 80 per cent and 20 per cent.
What are the advantages of a half and half mortgage?
So if you want to take out a two-year fixed rate but want to hedge in case interest rates fall during that time, you can put half of your loan on a tracker rate.
Paul Welch, founder and CEO of Large Mortgage Loans, said: ‘If you can’t decide between a fixed or variable rate, some lenders allow you to do both, known as a half and half mortgage.
So you would allocate part of your mortgage to a fixed rate deal while paying the rest at a variable rate, which gives you a little more security if rates rise, but also gives you the flexibility of not being tied down to a potentially expensive fixed rate. rate, should the rates fall.’
The option also has utility for people who want to overpay on their mortgage and can take advantage of tracker rates that are usually free of prepayment fees.
By putting part of your mortgage on a tracker and part on a fixed rate, you can better protect yourself against further interest rate increases.
Adds Mendes: “Some people promote this as a way to hedge your bets, but I think it’s especially useful if someone wants the option to overpay more than 10/20 percent a year by have part of the mortgage on an ERC-free tracker. .’
In the current environment, and with many mortgage holders looking to pay off their debts quickly, this is a convenient option to have the best of both worlds and not be penalized if you plan to significantly overpay to reduce debt .
The option can also be useful for those who want to transfer the loan.
Instead of having part of the mortgage at one fixed rate and any additional loans at another fixed rate, making the two parts out of sync.
Having an additional loan on a tracker with no early repayment fees means that when the existing fixed rate expires you can refinance without incurring a penalty to release the second installment of the loan if it was fixed .
Half and half options do not necessarily have to apply to fixed or tracker rates. You can also choose to vary the term of your loan.
For example, says Mendes, if someone is looking for a five-year fix but expects to receive part of the money in three years, they may choose to have a five-year part and a three-year part. .
You can even take advantage of the option to put a portion of your mortgage on a settling mortgage to reap the benefits of your savings account.
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