What happens if you repay some or all of your HSBC Fixed Rate Home Loan early?
When you enter into an HSBC fixed rate loan agreement, you are signing an agreement with us that your loan payments and interest rate will stay the same for a fixed rate period that you have chosen.
This gives you the certainty and peace of mind that your repayments will not change during your fixed rate period.
So if interest rates go up, you will be protected from the rises. But if they go down, you will not be able to take advantage of lower interest rates unless you repay your fixed rate loan early (in which case a prepayment loss recovery may arise).
For HSBC to provide you with this interest rate certainty, we need to manage our funding so we too can get interest rate certainty for our wholesale funding during the fixed rate period.
If you elect to repay your fixed rate loan prior to expiry of your fixed rate period, we may incur a prepayment loss as we will need to rearrange our own funding, which we obtain from wholesale money markets.
We pass this prepayment loss on to you in the form of a prepayment loss recovery if you elect to repay all or some of your fixed rate loan early or if you look to switch from your fixed rate loan for any reason. HSBC does not look to profit in any way from your prepayment but simply looks to recover a reasonable estimate of our loss.
This prepayment loss recovery may be defined as a break cost in your loan agreement.
How is the prepayment loss worked out?
To work out whether a prepayment loss applies, we use a formula to calculate whether we have incurred a loss as a result of prepayment of your fixed rate loan. This formula by its nature is sophisticated and notional. Our formula aims to calculate a reasonable estimate of our loss on prepayment.
In general terms, a prepayment loss recovery will be payable by you if HSBC's hedge rate for the remaining period of your fixed rate loan is less than the original hedge rate applicable at the start of your fixed rate loan period. A simplified version of our formula is as follows:
Prepayment loss = Loan amount to be prepaid × (multiply) Remaining term of the fixed rate period × (multiply) The difference between the inception and the current HSBC hedge rates1.
1HSBC hedge rates are rates that closely align with wholesale money market swap or bill rates and include our reasonable funding costs in the relevant wholesale money markets at the applicable time. These rates are not publicly quoted interest rates, but are available on request and are subject to change on a daily basis.
Why do we use wholesale money market interest rates in our prepayment loss formula?
Using the difference between HSBC wholesale or hedge rates in our formula reflects how we fund our fixed rate lending and represents a genuine estimate of our loss arising on early repayment of your fixed rate loan.
HSBC does not look to profit in any way from your prepayment, but simply looks to recover a reasonable estimate of our loss by passing on to you our prepayment loss (if applicable).
Using the difference in current retail interest rates would likely mean that we would not recover all our estimated loss on early repayment.
How can you find out if a prepayment loss recovery applies and what the amount will be?
You can call your HSBC Premier relationship manager or contact 0800 028 088 (or +64 9 918 8350 if you are calling from overseas) to confirm whether any prepayment loss recovery will apply to your loan and the amount of that loss. Any amount quoted will be indicative only and may change significantly due to fluctuations in current HSBC hedge or wholesale interest rates on a daily basis (either up or down). Actual prepayment loss recovery amounts will be confirmed once your prepayment request has been processed.
If you wish to make full or partial repayment of your fixed rate loan, then we will need written instructions from you no later than 3.30 pm (New Zealand time) on a business day to obtain the prepayment loss recovery for that business day. If your written request is not received by 3.30 pm or where cleared funds are not available to make the prepayment, then we will need to recalculate the prepayment loss recovery for the next business day.