Last Updated: 12th November, 2024
A split mortgage, or a split-rate home loan, is a feature that allows you to split your home loan into multiple accounts that attract different interest rates. A popular example of this is to split the home loan into a variable interest rate component and a fixed component. The fixed portion allows you to manage the risk of interest-rate fluctuations. At the same time, you can take advantage of rate cuts with the variable portion. You can allocate as much as you want to each account as long as the lender allows it.
How much could you save by splitting your loan?
Use the split loan calculator to work out your fixed and variable repayments and how much you could potentially save. There are many different types of home loan products, each with pros and cons depending on your financial situation and long-term plans. Call us on 1300 889 743 or complete our free online enquiry form and we can provide you with recommendations based on your situation.What is a split mortgage?
A split mortgage, or a split rate home loan, is a loan feature that allows you to split your home loan into multiple loan accounts that attract different interest rates. A popular example for this is to split the home loan into a variable interest rate component and have the rest of the loan amount fixed. The fixed component effectively allows you to manage the risk of interest rate fluctuations. At the same time, you can take advantage of rate cuts with the variable portion. You can allocate as much as you want to each account as long as it’s allowed by the lender.Example of splitting your home loan
Let’s say that you borrowed $500,000 over a 30-year term and fixed $300,000 at 3.90% a year, for three years, and kept the remaining $200,000 variable at 3.59%. Your fixed monthly repayments would be around $1415 and your variable repayments would be $908, bringing your total repayments to $2323 a month. After six months, your lender increases its variable rate to 3.79%, bringing your total mortgage repayments $2345, or an increase of $22 a month. If you had, instead, kept your home loan entirely variable, your repayments would have increased from $2270 to $2327 – an extra $57 a month. Similarly, if the variable rate were to decrease to 3.40% on your split loan, your total repayments would decrease to $2301, saving you $22 a month. Is loan splitting suitable for me? Call us on 1300 889 743 or fill in our free online assessment form to speak with one of our brokers and find out if a split home loan is suitable for you.What Are The Benefits Of A Split Rate Home Loan?
By splitting your home loan into two, one fixed and the other variable, you can enjoy the benefits of both sides while lessening the risk and effect on each option. In particular, a split mortgage offers:- Security: The fixed rate portion of the loan allows you to manage the risk of interest rate fluctuations. This protects you against sudden rises in interest rate.
- Flexibility: The variable component is the more risky side since there is the risk of an interest rate rise. However, the flexibility of this portion allows you to take advantage of potential decrease in interest rates.
- Competitive rates: You can get a competitive interest rate which can be secured with the fixed rate, while retaining the flexibility on the variable side.
- Unlimited repayments: You can make unlimited extra repayments on the variable side of the loan, which means you can reduce the size of the loan much quickly.
- Offset: Some lenders provide you with the option to have an offset account. This can help you save a lot of money on interest.
What Are The Advantages?
- You get the best of both worlds: rate security and the opportunity to save hundreds if variable rates drop.
- You can make unlimited extra repayments on the variable portion.
- You can qualify for additional features on your variable portion which help you to better manage your mortgage and pay it down faster, such as an offset account or a redraw facility.
- There are no restrictions on how you split your home loan, whether it’s 50/50, 70/30 or 60/40 (most lenders only allow two splits).
What Are The Drawbacks?
Aside from the benefits of a split mortgage, there are some things that you need to consider before you apply, which can include:- Missing out on potential interest rate drops on the fixed component of the loan.
- Paying more on the variable component if the interest rates rise.
- Additional fees, such as account-keeping costs may be charged on both the fixed and variable sides.
- You may be charged a break cost on the fixed term portion if you pay out the mortgage early.
