Have you ever wondered what mortgage splitting is exactly and what advantages and disadvantages it entails? We would be happy to clarify the matter for you.
Mortgage splitting refers to the division of a mortgage into several tranches with different terms. The number of tranches depends on the total amount of the mortgage. As a rule, the higher the total amount of the mortgage, the more tranches are possible. An average interest rate is paid in each case, which is calculated from the weighted interest of each tranche. The division into several tranches can make sense in individual cases, but some aspects must be taken into account.
What are the advantages of mortgage splitting?
Splitting prevents the entire mortgage from having to be extended at once during a period of high interest rates. It can therefore make sense to take out several tranches in order to avoid precisely this interest rate risk. This allows you to deal flexibly with ever-changing interest rates and life situations. In addition, mortgage splitting gives you greater flexibility to be able to repay parts of the mortgage more easily. Finally, with a splitting, the type of mortgage can also vary. For example, you can take out one tranche in a flexible SARON mortgage and the other tranche in a fixed-rate mortgage.
What are the disadvantages of mortgage splitting?
However, mortgage splitting also has disadvantages. Since all tranches are usually taken out with the same financial institution, dependency can arise. This in turn can make it difficult to transfer and switch individual tranches to another lender, as each financing institution wants to own the mortgage notes / security over real property as exclusively as possible. If the maturities of the tranches are more than two years apart, the change of provider is only possible to a limited extent. Moreover, early termination of the mortgage is associated with costs, the so-called early repayment penalty, which is hardly worthwhile on balance.
Finally, it can be said that whether and how you should divide your mortgage into tranches always depends on your individual situation. Let us, your independent company, advise you on all aspects of home ownership.
Your HYPOHAUS team