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Early loan prepayment clause

HSBC Fixed Rate Home Loan prepayment loss recovery clause

Full prepayment

You may prepay all of your loan at any time. If you prepay before the end of a fixed rate period for any reason (including because we have required repayment as permitted under this agreement), you may need to pay an amount certified by us to be our reasonable estimate of HSBC's loss on full prepayment (our prepayment loss).

Our prepayment loss must be paid before or when you make the prepayment in cleared funds.

To work out whether a prepayment loss applies to your loan, we use a formula to calculate whether we have incurred a loss on prepayment. This formula by its nature is sophisticated and notional but in general terms, a prepayment loss will be the difference between:

  • the HSBC hedge rate at which we determine we may fund your loan in the wholesale money market at the start of your fixed interest rate period; and
  • the HSBC hedge rate at which we determine we may reinvest funds in the relevant wholesale money market for the period from and excluding the date of prepayment to and including the last day of the fixed rate period (the remaining period) as reasonably estimated or calculated by us over the remaining period and adjusted to take account of the fact that we are receiving our prepayment loss at the time of the prepayment and not over the remaining period. Our formula takes into account how the principal of the notional transaction would have declined as your principal reduced over the fixed term (if repaying principal), and also takes into account the time value of money.

Our prepayment loss will only be charged on the amount prepaid and will vary in amount depending on the movement in the HSBC hedge rates, the amount of the prepayment and the length of the remaining period.

The HSBC hedge rates determined above are not the same as the publicly quoted wholesale money market swap and bill interest rates. They are closely aligned with the inclusion of a small adjustment to reflect a reasonable estimate of our borrowing and lending costs in the wholesale money markets. These rates can change daily and are available upon request.

Our prepayment loss will be in addition to the administrative costs incurred by us arising from the prepayment of your fixed rate loan before the end of the fixed rate period or a charge equal to our average administrative costs arising from the prepayment of fixed rate contracts of the appropriate class.

To help you better understand our formula and the potential cost of our prepayment loss, we have set out some additional information. Click here to find out more. This information also includes a detailed mathematical formula and an indicative guide as to a number of possible prepayment loss outcomes or examples. We recommend that you read this information before signing your agreement with us. This information is also available upon request if you do not have access to the internet.

If you are unsure about any aspect of our prepayment loss formula, please contact us for additional information, and we recommend that you seek suitable, qualified independent advice before signing the agreement.

Any prepayment loss quoted to you will be indicative only, with the actual prepayment loss being confirmed once your request has been processed. In order to process your prepayment request, we will require your written instructions to be received by us by no later than 3.30 pm on a business day and with cleared funds available to make the prepayment. If instructions are received after this time, your request will be processed on the next business day.

If you prepay after a fixed rate period and the annual interest rate is HSBC's home loan floating rate, you may do so without incurring a prepayment loss.

For the purposes of the Credit Contracts and Consumer Finance Act 2003, the statutory procedure prescribed in regulations for the creditor's loss arising from full prepayment has not been used.

Part prepayment

You may prepay part of your loan at any time. However, we may decline any part prepayment less than NZD5,000 or such other amount as specified by us from time to time.

If you prepay an amount before the end of the fixed rate period, then you may need to pay our prepayment loss calculated in the same manner as set out above in the full prepayment section.

If you prepay an amount after the fixed rate period and the annual interest rate is HSBC's home loan floating rate, you may do so without incurring a prepayment loss.

Switching a fixed rate loan

If during any fixed interest rate period, you switch to a different interest rate for any reason, then you must pay an amount calculated in the same manner as set out above in the full prepayment section.

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