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Depending on your circumstances, splitting your home loan between fixed and variable interest rates can enable you to get the best of both worlds. You can split your loan at any time, from when you’ve just settled or throughout the life of the loan as your circumstances change.
Split home loan explained
A split home loan is when you divide your loan into multiple parts - meaning you could nominate a portion of the loan to have a fixed interest rate and the remainder could have a variable interest rate.
For example, if you split your $500,000 home loan relevant to your needs by implementing 60 fixed:40 variable split. Your home loan would then be divided into two loans - a fixed interest rate would be charged on $300,000 and the remaining $200,000 would have a variable interest rate.
What are the advantages?
There are advantages to both fixed and variable rate home loans. With a split loan, you can get the most out of the features and benefits that are most important to you.
While a portion of your home loan is fixed, you would be protected if interest rates rise (however, you wouldn’t benefit from a drop in interest rates), and you’d always know what your repayments will be. With the variable part of your home loan, you’d have the flexibility to make unlimited additional repayments, which could mean paying off that portion of your home loan faster, as well as potential access to benefits such as redraw and an offset account depending on the type of variable rate home loan you choose.
You may also benefit from an interest rate drop, however that also means your repayments would increase if the interest rate goes up.
If the interest rate does drop, your repayments will not automatically change. You can choose to lower them or keep your repayments at the same level, so you repay your home loan faster.
Make sure you consider your options
Before you decide to split your loan and what ratio you choose to split your loan, you may want to consider things such as:
whether your main objective is certainty and reducing the impact of interest rate fluctuations or if you’d prefer the flexibility to make additional repayments and a redraw facility or access to an Everyday Offset account.
If your personal and financial circumstances are likely to change in the future; and What fixed rate timeframe you are ready to fully commit to (from one up to five years), as there are penalties for breaking a fixed rate term.
Speak to your mortgage broker today about split loans.
Kind Regards,
The Newstead Group Team