“Is splitting a mortgage worth it?”

Question: My partner and I are planning to buy a property. What are the benefits of splitting up the mortgage and what should I look out for?

Answer: Mortgage splitting enables you to optimise the interest rate risk. You have two options – either you split the financing into different types of mortgage, or you stagger the financing across different terms.

The mixed mortgage

The first scenario involves a mixed mortgage. For example, you can combine a fixed-rate mortgage with a money market mortgage, which tracks the average interest rate of short-term loans on the financial markets (SARON). If this interest rate falls, you benefit from lower costs under the SARON mortgage. If interest rates increase, you can offset the cost increase to some extent thanks to the fixed-rate mortgage product. Another benefit: if one of the mortgage parts tracks the SARON, you can stay flexible in case you want to pay back the mortgage early.

The staggered mortgage

If a mortgage is split up into parts with different terms, this is known as a staggered mortgage. In this case, you don’t have to renew the entire mortgage all at the same time, but rather in stages. The benefit: if one part expires during a period of high interest rates, only this part of the mortgage has to be refinanced at unfavourable terms. If another part expires at a later date, it can be assumed that interest rates will have reached a different level by that time. However, there has to be a sufficiently long gap between the expiry dates of the individual parts – at least several years.

Splitting also has its drawbacks. The strain on your budget will differ from year to year. A fixed-rate mortgage means that you know where you stand with your budget. In addition, splitting a mortgage means that you are more tightly locked in with your lender. As such, moving your mortgage to another bank will be more complicated, as you may have to split the mortgage note.

Handy tip

Whether splitting makes sense will depend on age, family circumstances, cash flow and other factors. Seek assistance from a client advisor before making a decision.