More Relief For Mortgage Payment Shock

There some good news for homeowners - at last! HSBC is to extend its Rate Matcher mortgage offer for a little while longer.

As you're probably already aware, there are far fewer mortgages available than usual at the moment and fixed rates for those looking to remortgage are higher than they've been for a while.

All this has led to worries that many people will struggle with mortgage "payment shock" because their new fixed rate is much more expensive than their previous one.

Back in February, HSBC offered a ray of hope when it introduced its Rate Matcher mortgage. This offered a two-year fixed rate on the same terms as your previous fixed-rate deal. Initially, it was only open to HSBC customers but in April it was extended to non-HSBC customers as well.

We wrote about this mortgage just over a month ago but we're giving it another airing as today HSBC has announced that Rate Matcher will now be available until 29 June, both for HSBC and non-HSBC customers.

Part of the reason for this is that it's been pulling in the punters like nobody's business. HSBC reckons its mortgage sales are four times higher than last year due to this product. Although that sounds impressive, HSBC has only really been a small player in mortgage market in recent years.

The details

Many of the terms being offered vary depending on whether you're an HSBC customer or not. Here's a summary of the key points:

If your mortgage is greater than the maximum limit then you are able to have mixed mortgage which is part Rate Matcher and part one of HSBC's other mortgage offers.

It's interesting to note that the average loan to value for all Rate Matcher mortgages to date has been 56%. In other words, the average applicant has 44% of equity in their home, indicating that it's all types of homeowners opting for this deal and not just people who have recently bought their first home (who are considered to be those most at risk from payment shock).

What's the catch?

Eagle-eyed Fools have no doubt already asked this question and many may have even spotted the answer. The trick here is that the mortgage fee varies depending on what rate your previous mortgage was and how big your mortgage is. There is a calculator on HSBC's website which gives you an idea of what fee you might pay.

The fees have been organised in such a way that you end up being charged the same whatever rate your previous mortgage was at. Say you're a non-HSBC customer with a £150,000 mortgage previously fixed at 5%. Your fee would be £1,399.

If your previous rate was 4.6% though, the fee would be £2,599. In the second example, the additional amount you would save in interest over the first two years is effectively cancelled out by the increased fee. You could still benefit from lower monthly repayments by adding the fee to your mortgage of course.

However, this will mean you end up paying more interest in the long run. Having said all that though, HSBC reckons that two-thirds of people will pay a fee of £999 or less.

How does the deal compare?

The variable fees for Rate Matcher mean that it's offering the equivalent of a 2-year fixed rate of around 5.5%, regardless of what previous rate you were on. Compared with other rates available in the market this is a pretty good deal. The best short-term fixed rates start at about this rate of interest but usually charge a £1,000 fee on top.

Before you take the plunge, it's also worth considering whether a 2-year deal is right for you. It's possible that the mortgage market may not have recovered from the credit crunch by this time and you might feel more comfortable with a 3 or 5 year fix instead. Existing HSBC customers are in a better position of course as they can get these longer deals with their version of Rate Matcher.

Another thing to watch out for is that this deal is only available through HSBC branches and by telephone so you won't get it through a mortgage broker. Nevertheless it's still worth using a mortgage broker, like the Fool's own fee-free mortgage service, to make sure you're definitely getting the best deal for you and your circumstances.

More: Why Rate Doesn't Rule For Mortgages