Let’s get the skinny on how a split home loan works

Splitting your home loan means exactly what it sounds like – for part of your loan you pay a fixed rate and for the other part you pay a variable rate. Splitting your home loan into fixed and variable rate portions can give you both the certainty of a fixed rate and the flexibility of a variable rate. And the great part is, you get to choose how much of your loan you portion to each.

Split home loan pros and cons

Split home loans appeal to borrowers who like to hedge their bets. Depending on your personal situation, splitting your borrowings into fixed and variable rate portions can give you certainty over a portion of your repayments that are fixed, while giving you the opportunity to benefit from a favourable market with the other portion of your home loan that is variable.

A split home loan in action

But what kind of benefit can a split home loan really give you? The easiest way to find out is to put some numbers to it.

As an example, suppose you have a $450,000 home loan and you split this into two separate loan accounts. One being a $250,000 variable rate split and the other being a $200,000 3 year fixed rate split.

  • The fixed rate split will have a rate locked in for 3 years with set repayments.
  • The variable rate split may change as market interest rates vary.

In this scenario, almost half of your loan is fixed, meaning you know exactly how much your monthly repayments will be on that portion for 3 years. This reduces the variability you need to allow for in your budget.

On the other hand, you are able to make unlimited additional repayments into the variable rate split, access redraw and offset funds against the loan to save on interest costs.


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