The short answer
A split home loan puts part of your loan on a fixed rate and the rest on a variable rate. The fixed part gives you set repayments for a time; the variable part usually allows extra repayments, redraw and an offset. Each part follows its own rules, so the trade-offs sit side by side in one loan.
How a split loan works
You and the lender agree how the loan is divided. Each split is its own account with its own rate, repayment and features. For example, on a loan split evenly, half the balance is charged the fixed rate and half the variable rate, and you make a repayment on each part.
Why some borrowers split
- Some certainty: repayments on the fixed part don’t change during the fixed term.
- Some flexibility: the variable part usually allows extra repayments, redraw and an offset account.
- Some exposure to rate changes: if variable rates fall, the variable part benefits; if they rise, only part of the loan is affected.
The trade-offs
- Break costs: paying off or changing the fixed part early can mean a break cost, which can be large.
- Extra repayment limits: many fixed loans cap extra repayments each year.
- More to manage: two or more accounts, repayments and expiry dates.
- Features vary: an offset may only link to the variable part.
What to check before you split
Look at the fixed and variable rates with their comparison rates, any fees for the split, whether an offset can link to each part, the extra repayment limit on the fixed part, and how break costs are worked out. The right split depends on your situation and plans, such as whether you might sell or refinance during the fixed term. General information only.
Mortgage broker at My Finance Consultants. Daniel compares home loan options from a panel of 40+ lenders for refinancers, investors and home buyers, by phone or video, evenings included. About Daniel
General information only. It doesn’t consider your objectives, financial situation or needs, and it isn’t tax, legal or financial product advice. Lending criteria, fees and charges apply.