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An example of our simplified formula for Prepayment Loss

You wish to make a full early repayment of your fixed rate loan which has 2 years remaining of its original fixed rate period and has an outstanding balance of $100,000.

At inception of the fixed rate period the HSBC hedge rate was 6.30% p.a.

At the date of your proposed prepayment the HSBC hedge rate for the remaining term
of the fixed rate period is 4.45% p.a.

Prepayment Loss Calculation =
$100,000 * 2 years * 1.85% p.a. (6.30% p.a. less 4.45% p.a.)

As there is an approximate Prepayment Loss of 3,700 in this scenario a Prepayment Loss recovery would apply

The above calculation will only provide you with an estimation of our Prepayment Loss. The
actual Prepayment Loss will be calculated by using the full mathematical formula set out
below and will determine if a Prepayment Loss recovery is applicable:

Prepayment Loss:
= value of loan after prepayment – value of loan before prepayment
= PV (interest flows with prepayment) – PV (interest flows without prepayment)
= { B’1*(Ro–Rc)*DF1 + B’2*(Ro–Rc)*DF2 + …+ B’t*(Ro–Rc)*DFt }
- { B1*(Ro–Rc)*DF1 + B2*(Ro–Rc)*DF2 + …+ Bt*(Ro–Rc)*DFt }

Where:
B’1 = balance after prepayment at instalment 1, instalment 2 … up to
instalment t
B1 = balance before prepayment at instalment 1, instalment 2 .. up to
instalment t
Ro = HSBC hedge rate for fixed term of loan at inception of fixed rate period
(using zero coupon per period methodology)
Rc = current HSBC hedge rate for remaining term of fixed rate period (using
zero coupon per period methodology)
DFt = discount factor at instalment 1, instalment 2… up to instalment t

This mathematical formula is sophisticated and also takes into account the following factors and applies them to your individual circumstances:

  • amount of the loan being prepaid
  • the remaining period of your fixed rate loan
  • amortisation - the calculation takes into account how much of your loan or principal you would have paid off over the remainder of your fixed rate period
  • time value of money - a dollar payable today is worth more than a dollar payable in the future - so the value of the remaining payments is calculated as at the date of prepayment, while the payments themselves would have occurred over the remainder of your fixed rate period.

Taking our earlier example, and assuming your loan was being repaid at $1,000 per month with 24 monthly repayment instalments until the end of the fixed rate period, the actual Prepayment Loss would be $3,416 and therefore a Prepayment Loss recovery of this amount would apply.

Other examples or an indicative guide to possible Prepayment Loss Recovery
outcomes

The table below gives you an indicative guide to some possible Prepayment Loss recovery
outcomes:

      Remaining term
Current
Hedge Rate
Contract Hedge Rate Difference in Hedge Rates

1


2


3


4


5
6.5% 6.3% -0.2% No Prepayment charges applied
6.0% 6.3% 0.3 % $ 290 $ 554 $ 791 $ 1,002 $ 1,186
5.5% 6.3% 0.8 % $ 772 $ 1,478 $ 2,111 $ 2,672 $ 3,161
5.0% 6.3% 1.3 % $ 1,255 $ 2,401 $ 3,430 $ 4,341 $ 5,137
4.5% 6.3% 1.8 % $ 1,737 $ 3,324 $ 4,749 $ 6,011 $ 7,113
40% 6.3% 2.3 % $ 2,220 $ 4,248 $ 6,068 $ 7,681 $ 9,089
3.5% 6.3% 2.8 % $ 2,702 $ 5,171 $ 7,387 $ 9,351 $11,065
3.0% 6.3% 3.3 % $ 3,185 $ 6,095 $ 8,706 $11,020 $13,041
Assumptions used in table above Prepayment amount: $ 100,000
  Monthly repayment amount: $ 1,000
  Loan Type: P&I

 Important: The table above provides an indicative guide only of what potential Prepayment Loss recovery outcomes may arise on early repayment. The actual amount of any applicable Prepayment Loss recovery will be confirmed when actual prepayment has been made by you with cleared funds. HSBC reasonable administration cost (currently $50 per loan) and other loan or security related fees may also apply as set our in our Retail Banking and Wealth Management Fees and Charges booklet.