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Split home loans explained. Simple

A split home loan lets you hedge against rate rises by fixing part of your loan while still enjoying the flexibility of a variable rate.

What is a split rate home loan?

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.

How do I split my home loan?

1. 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.
2. 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).
3. Make repayments. Once your loan is split you make repayments into each portion as normal.
4. 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.

Example: Catherine goes for a split loan

Catherine is discussing her split loan options with her lender. She needs to borrow \$600,000. Catherine wants to:

• Fix part of her rate so she can budget for the repayments knowing they won't change.
• Put \$50,000 of savings into a 100% 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.

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.

How can a broker help?

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.

To make sure you get accurate and helpful information, this guide has been edited by Joelle Grubb as part of our fact-checking process.
Written by

Richard Whitten

Editor

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. See full bio

Richard's expertise
Richard has written 544 Finder guides across topics including:
• Home loans
• Property
• Personal finance
• Money-saving tips

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