The home loan hedge: Aussies prefer split rate mortgages

• • • • 20% of Australians now prefer a mortgage with both variable and fixed rates
      • The lowest fixed and variable rates now both start with a “1”
      • Reasons for choosing to split your interest rate

16 September 2020, Sydney, Australia – Aussies want the best of both worlds for their home loan interest rate, according to new research by Finder, Australia's most visited comparison site.

Finder recently surveyed 1,000 Australians about how they would structure their mortgage if they were to refinance.

The data revealed that 1 in 5 (20%) would opt for a split mortgage, dividing their loan into fixed and variable portions.

Around 19% would refinance to a variable loan, while 17% would prefer to lock in their rate for a set period of time with a fixed rate mortgage. The remaining 43% said they were unsure if they'd opt for fixed or variable.

Graham Cooke, insights manager at Finder, said that fixed rate loans come with both risks and benefits.

"With the cash rate set to remain at 0.25% for some time, it's unlikely the big banks will lower their standard variable mortgage rates any further for now.

"This means fixed rate loans are back in vogue. For some homeowners, locking in their rate for a year or more may offer greater savings than a variable rate would.

"We're currently seeing rock-bottom rates across the board, with fixed rates as low as 1.95% from Easystreet, and the lowest variable rate even lower at 1.89% from Reduce Home Loans," he said.

The research found that it's the younger generations who place the most value on flexibility.

Over a quarter of gen Z (27%) would split their mortgage – more so than any other generation – while millennials are the most likely to choose a variable loan (23%).

Baby boomers were more likely to refinance to a fixed rate (19%).

By state, Victorians (23%) are the most likely to choose a variable loan, followed by 1 in 5 NSW residents (20%).

Queenslanders are the most likely to choose either a split loan (25%) or a fixed rate loan (21%), but the least interested in a variable rate loan (12%).

Cooke said that homeowners should consider their financial objectives before restructuring their loan.

"There can be hefty financial penalties for breaking a fixed rate loan early, so make sure this is something you're prepared to commit to for that 1-5 year period.

"Otherwise, a split loan or variable loan may be your safest bet," Cooke said.

Would you opt for a fixed rate home loan if you were buying or refinancing?

By generation

Reasons to consider splitting

• 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, as well as the benefit of any rate reductions and some of the features commonly offered by 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.