Leave the guess work behind and see if you could benefit from splitting your loan.
A split loan is a loan that is divided between a variable rate and fixed rate. Lenders usually offer the ability to split a loan into two halves or in a customised fashion, such as 60% variable and 40% fixed rate. These types of loans give you some of the security of a fixed rate loan with some of the flexibility of a variable rate home loan. This can work well in uncertain financial times since a split loan allows you some protection from interest rate fluctuations and yet some of the savings of a variable rate if rates drop.
A split loan calculator takes the financial information you put into it and works out the total interest that you’d be charged in the life of a split loan. The calculator gives you quick results that allow you to make an informed decision regarding a split loan.
How to use the split loan calculator
The split calculator is easy to use and can prove to be quite helpful as you navigate the sometimes tricky home loan waters. All you have to do is enter your information and let the calculator do the math for you. As long as you input the correct information you’ll get an accurate result, so make sure you double check everything you put into the calculator.
You’ll need the exact amount of your loan, your interest rate, your repayments, the frequency of your repayments (weekly, monthly, etc.) and the number of weeks and fortnights in the year.
- Loan amount. This refers to the amount of money you originally borrowed or what you plan to borrow from your lender.
- Loan term. This is the length of time you have to repay the loan and is usually a period of between 25 - 30 years, although if you’re refinancing you could have much less left on your loan term.
- Interest rate. This is the agreed upon percent that the lender charges you for borrowing the money. It’s calculated daily on the outstanding balance of the loan. The interest rate also goes by how many days are in a given month.
- Repayments. These refer to the amount you pay back to the lender, while repayment frequency is how often you pay back your loan. This is usually weekly, fortnightly, or monthly depending upon your agreement with your lender.
It’s important to make sure that everything you input is exact or as close to exact as possible. This is because the calculator uses an unrounded repayment to calculate the amount of interest payable on the loan. Once all of your information is in, the fixed and variable repayment, the entire monthly repayment and the complete interest payable on the loan will all be calculated.
Harold is looking for a home loan and wants both security and flexibility. To achieve both, he looks into a split loan where he can have the security of a fixed rate loan with the flexibility of a variable loan. He is unsure of how beneficial the split loan will be so he consults a split loan calculator with his loan information in order to get an understanding of what he’ll be paying.
Harold puts his information into the calculator. He has a $300,000 loan, 60% of which is fixed at 5.50% p.a. for a three-year term. His variable interest rate is also 5.50% p.a. and the life of the loan is 20 years. He is making repayments monthly.
Based on this information the calculator tells Harold that his fixed monthly repayments will be $1,288.20 while his variable monthly repayments will be $825.46. The total monthly payments before and after the three-year term will be $2,063.66 with the total interest payable equalling $195,279.
This allows Harold to know what his repayments would be. Of course, the true value of a split rate home loan depends on what happens to interest rates. If interest rates began to rise, Harold would still pay the $1,288.20 for his fixed rate portion, but his variable repayments could rise. If rates dropped, he’d still pay the $1,288.20 portion, but his variable repayments could get smaller.
Frequently asked questions
What information will I need to use this calculator?
You’ll need the total loan amount, the percentage set for the fixed rate portion of the loan, the fixed period of the loan (the term), the fixed and variable interest rates, the loan term, and your repayment frequency. These amounts should all be exact.
How accurate is the calculator?
The split loan calculator is accurate as long as the amounts put into it are accurate. If those numbers are off, the final result will be incorrect. As always, this calculator provides an estimate only, so you should seek professional financial advice for more information.
How do split loans work?
A split loan takes your home loan and divides it between a fixed rate and a variable rate. A common way to use this loan is to divide it into a 60% variable rate and a 40% fixed rate. Some loans allow you to split your home loan into more than two portions.
What if I don’t know the exact amounts for this calculator?
You might not have exact figures, especially if you’re still in the process of getting a home loan. This isn’t really a problem because you can use estimated numbers in the calculator. It should be noted that the accuracy of the calculator is solely dependent on the numbers you input, so if you do use estimated amounts instead of exact numbers your final result will not be accurate, it’ll be estimated.
If you’re looking into a split loan for your next mortgage or are looking to change your current mortgage, start by using a split loan calculator to see how much you can save. If you’d like more professional advice in addition to using the calculator, compare mortgage brokers in your area and set up a consultation today.