If you’ve been looking into home loans, you might have come across the term “split loan” and wondered, “What the heck is that?” Let me break it down.
What Is a Split Home Loan?
A split home loan is when you divide (split) your loan into two (or more) parts – usually people will split their loan into 2 loans, one with a fixed interest rate and the other with a variable interest rate. This is for people that want the best of both worlds, or just can’t decide what loan they want!
- Fixed Rate: This portion of your loan has a fixed interest rate for a set period, meaning your repayments will stay the same for that time. It’s great for those who like predictability, as it protects you from rising interest rates.
- Variable Rate: The other portion of your loan has a variable interest rate, which means your repayments can go up or down depending on the market. While it’s less predictable, it gives you the flexibility to take advantage of interest rate cuts and lets you make extra repayments to pay off your loan faster, and also will allow you to have an offset facility.
How Does a Split Loan Work?
Let’s say you take out a $500,000 home loan. You could split it 50/50, with $250,000 on a fixed rate and $250,000 on a variable rate. You’d then pay the fixed rate for one half, ensuring stability in your repayments, while the other half would move with the market.
The split doesn’t have to be 50/50 either. You might want a 70/30 or 80/20 split depending on your personal financial situation and your comfort level with risk. The good news is you can tailor it to what suits you best.
What Are the Benefits of a Split Loan?
- Flexibility and Security: With a split loan, you have the security of fixed repayments on part of your loan, while also keeping the flexibility to make extra repayments or benefit from potential interest rate cuts on the variable portion.
- Manage Risk: Fixed loans are great in times of rising interest rates, but if rates drop, you could miss out. A split loan lets you hedge your bets, so you can handle both situations.
- Extra Repayments: On the variable portion of your loan, you can make extra repayments without penalty, and you can have an offset account linked to this loan, helping you pay off your mortgage faster. Fixed rate loans have more restrictions on extra repayments, and the majority of fixed loans don’t allow 100% offset accounts.
Is a Split Loan Right for You?
A split loan can be a good option if you’re looking for balance between stability and flexibility. If you’re unsure whether rates are going to rise or fall and want to hedge your bets, it’s worth considering.
However, split loans can be a bit more complex to manage than a standard loan. It’s important to weigh up the pros and cons and think about your future plans. Do you value security or flexibility more? What are your financial goals?
Let Us Help You Decide!
If you’re still unsure whether a split loan is right for you, we’re here to help! Give us a call at 02 6188 4555 or make an appointment for a free consultation. We’ll walk you through your options and find a loan that’s perfect for you.
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