Most home loans have a fixed or variable interest rate. But with a split rate home loan you can divide your loan principal into 2 (or more) accounts, one with a fixed rate, one with a variable rate.
The split doesn't have to be 50/50 either. You could split an $800,000 home loan into a $500,000 fixed rate account and a $300,000 variable rate account.
Splitting offers access to benefits of both rate types. If rates rise, the fixed portion of your mortgage split will still be at the lower rate. Variable rate loans often allow you to make extra repayments or put savings into an offset account.
Catherine decides to split her loan 50/50, putting $300,000 into a 3-year fixed rate account and $300,000 into a variable rate with an offset account. She puts $50,000 of her savings into the offset account.
Split loan calculator
You can use our split loan calculator to estimate the costs and benefits of splitting your rate.
Enter your full loan amount in the second field.
Enter the amount you wish to fix in the "fixed portion of loan" field and specify the length of the fixed period.
Enter the fixed and variable interest rates.
If you don't have the exact numbers, use estimates.
Find a loan with a split facility. Not all mortgages have the option to split your loan. Check if yours does and if it doesn't, consider refinancing to a loan that allows splits.
Decide your split portions. You can split any way you like depending on how you wish to structure your loan. You could split 50/50 or into more than 2 portions (most lenders allow up to 6 splits).
Make repayments. Once your loan is split you make repayments into each portion as normal.
Monitor your rates. The fixed rate portion won't change during the fixed period. But your variable portion can change at any time, so be sure to monitor the rate.
The pros and cons of splitting your home loan
Pros
Certainty and flexibility. A split rate loan can give you certainty that part of your loan won't be impacted should interest rates rise, but the flexibility to benefit from any rate reductions and some of the features commonly offered on variable rate loans.
Repayment certainty. During the fixed term, your rate, and therefore your repayments, won't change at all. This can give borrowers who are trying to keep to a strict budget more security.
Offset accounts and extra repayments. If the variable portion of your loan allows for extra repayments or has an offset account you can use extra cash to reduce your home loan debt faster.
More options. A split facility gives you more options with your mortgage, allowing you to fine tune your splits for maximum effect.
Cons
Splitting is complicated. Your lender or broker can help structure your split loan, but is a more complicated arrangement. You need to keep an eye on rate rises for your variable loan account, and also keep track of when the fixed period is ending.
You cannot get the full benefit of both rate types. A split rate lets you have it both ways, with a compromise. Your fixed portion is protected against rate rises but the variable portion is not. If you put money in an offset account it will only offset the variable portion of the loan and not the full loan amount.
Fixed rate loans have breaking costs. Fixing means you are locked in for a set period of time. While you can pay off, exit or refinance a split loan, there's a cost for breaking the fixed rate portion of the loan.
A mortgage broker can help you design a mortgage split that works for you. This can be very helpful because calculating these splits and understanding the benefits can be confusing for the average borrower.
Frequently asked questions about split home loans
A home loan split means dividing portions of your loan principal (the money you have borrowed) into different home loan accounts with different interest rate types. You could split your loan 50/50 between fixed and variable rates, or you could split it 80/20 and so on. Some lenders allow you to split multiple times.
Split rate home loans allow you to enjoy some benefits of both fixed and variable rates. If your lender cuts rates, your variable portion will drop. But if rates rise, the fixed portion of your mortgage split will still be at the lower rate (because fixed rates don't change).
The process for splitting a loan is relatively simple, although you can do very complicated splits with the aid of a split calculator or a broker.
Find a loan with a split facility. Not all mortgages have the option to split your loan. Check if yours does and if it doesn't, ask your lender if they can make an exception or consider refinancing to a loan that allows splits.
Decide your split portions. You can split any way you like depending on how you wish to structure your loan.
Make repayments. Once your loan is split you make repayments into each portion as normal. If your variable portion allows for extra repayments you could pay off extra in order to pay off your loan faster.
Monitor your rates. The fixed rate portion won't change during the fixed period. But your variable portion can change at any time, so be sure to monitor the rate. If it gets too high you might want to refinance. Just keep in mind that there are breaking costs associated with ending a fixed rate, which could be costly.
Offers certainty and flexibility. A split rate loan can give you the certainty that a portion of your loan won't be impacted should interest rates rise, but the flexibility to benefit from any rate reductions and some of the features commonly offered on variable rate loans.
Repayment certainty. A fixed rate locks in a rate for an agreed period of time. During this fixed term, your rate, and therefore your repayments, won't change at all. This can give borrowers who are trying to keep to a strict budget more security, and can minimise the impact of rate increases.
Offset accounts and extra repayments. If the variable portion of your loan allows for extra repayments or has an offset account you can use extra cash to reduce your home loan debt faster.
More options. A split facility gives you more options with your mortgage, allowing you to fine tune your splits for maximum effect.
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Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification.
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Just wondering if you have a split loan and want to refinance the variable portion of the loan can that be done? If the fixed portion is with the old bank.
Continuing, there might not be enough collateral to make up the 80% that we need to refinance as the interest loan runs out and ends in 5 months and as I said there might not enough , have you got any suggestions, we could rent the investment house as it stands empty, we just didn’t have to , I guess, Diane
If you’re unable to come up with 80%, your nearest option is to use the equity available in your family home to borrow up to 100%. You can check about line of credit equity loans and the list of lenders available.
Alternatively, if you’re uncomfortable with tapping your home equity, you may proceed with refinancing deals that offer low-deposit home loans. You can use the calculator located at the top of the comparison table to get an estimate of your repayments.
We have 2 houses ,one that we live in paid $ 364,000 in 2009 and the other an investment house,paid $364.000, almost 5 years ago. Also, we have interest loan only, it expires in 5 months, there has been a down turn and both house together are valued at $370,000. We have a business, Bank said they don’t chattels for loans, help.
Lenders have different criteria when it comes to properties that can be accepted as security for a home loan. The general rule is the easier a property is to sell and the higher the demand for that particular type of property, the better the chances of a lender accepting it as loan security.
You may consider getting a low doc home loan. These can be useful for business owners. Once you have selected a particular lender, you may have to directly get in touch with them to discuss the eligibility of your property as security. When you are ready, you may then click on the “Enquire now” button. If you submit your details via the form on the page, a mortgage broker will be in touch to discuss the different options available and provide you with a quote.
Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you. You can also contact the provider if you have specific questions.
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Hi there,
Just wondering if you have a split loan and want to refinance the variable portion of the loan can that be done? If the fixed portion is with the old bank.
Hi Andi,
With this situation, it’s probably best to speak with a mortgage broker to check your options for your specific circumstances.
All the best,
Rebecca
Continuing, there might not be enough collateral to make up the 80% that we need to refinance as the interest loan runs out and ends in 5 months and as I said there might not enough , have you got any suggestions, we could rent the investment house as it stands empty, we just didn’t have to , I guess, Diane
Hello Diane,
Thank you for providing these additional details.
If you’re unable to come up with 80%, your nearest option is to use the equity available in your family home to borrow up to 100%. You can check about line of credit equity loans and the list of lenders available.
Alternatively, if you’re uncomfortable with tapping your home equity, you may proceed with refinancing deals that offer low-deposit home loans. You can use the calculator located at the top of the comparison table to get an estimate of your repayments.
Hope this helps.
Cheers,
Jonathan
We have 2 houses ,one that we live in paid $ 364,000 in 2009 and the other an investment house,paid $364.000, almost 5 years ago. Also, we have interest loan only, it expires in 5 months, there has been a down turn and both house together are valued at $370,000. We have a business, Bank said they don’t chattels for loans, help.
Hello Diane,
Thanks for reaching out to Finder.
Lenders have different criteria when it comes to properties that can be accepted as security for a home loan. The general rule is the easier a property is to sell and the higher the demand for that particular type of property, the better the chances of a lender accepting it as loan security.
You may consider getting a low doc home loan. These can be useful for business owners. Once you have selected a particular lender, you may have to directly get in touch with them to discuss the eligibility of your property as security. When you are ready, you may then click on the “Enquire now” button. If you submit your details via the form on the page, a mortgage broker will be in touch to discuss the different options available and provide you with a quote.
Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you. You can also contact the provider if you have specific questions.
Hope this helps.
Cheers,
Jonathan