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Repayment Split

A repayment split refers to the ways that payments are allocated on a split mortgage. These repayment splits might allow you to take out a mortgage where part of the loan is a fixed rate loan, while the remainder of the loan is a variable rate, set against a tracking rate for the life of the loan. Home buying borrowers are able to fix their rate at twenty-five percent, fifty percent, or even seventy-five percent of the total mortgage amount. The balance of the loan then tracks a certain rate, like the Prime Rate or Bank of England base rate alongside the fixed part of the loan.

The interest rate charged varies along with the percentage of the mortgage balance that is at a fixed rate. For example, with only twenty-five percent of the home loan balance fixed, the fixed part of the rate might amount to 3.49% interest. If the split is done at a fifty percent rate of split, then the interest rate might instead be at 3.69% on the fixed rate. With seventy-five percent of the mortgage total fixed, the interest rate on the fixed portion could come in at 3.99% instead. These sample rates assume a loan to value ratio of only seventy percent, meaning that a thirty percent down payment would be expected. With only a twenty percent down payment made, the rates would likely be a half percentage point higher. The interest rate on the balance of the loan total is variable and is adjusted periodically. The repayment split then determines which portion of the payments applies to which interest rate balance. This form of repayment split and split mortgage is most commonly seen in Great Britain.

A second way that repayment splits are used has to do with split mortgages that involve first and second mortgages. This split mortgage technique is commonly used in America to reduce the amount of the principal mortgage to no more than eighty percent of the purchase price so that Private Mortgage Insurance will not be required. With this technique, a second mortgage or home equity line of credit to the amount of five to ten percent of the home purchase price is used to come up with enough cash to keep the first mortgage to eighty percent or less. In this version of the split mortgage, the repayment split refers to which portion of the payments goes against the first mortgage and which against the second mortgage.

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