Split loans

When it comes to paying interest on your home loan, picking the best way to configure your rate can be tricky. Ideally, it should be designed to suit your personal finances as well as your future life plans. Here we explain what a split loan is, how split loans work, as well as the pros and cons.

What is a split home loan?

A split rate home loan, otherwise known as a partially-fixed interest loan, allows borrowers to split their loan into portions and repay one part at a fixed rate and the remaining part at a variable rate. This can allow borrowers to reap the benefits of both a fixed and variable home loan by threading the two together.

It’s important to note that this split does not need to be an equal 50:50 divide. For one portion of the loan, the rate will remain stable and fixed, while the other portion can allow for more flexibility and freedom as the market fluctuates.

How does a split loan work?

Split loans combine elements of the two most common types of home loans, giving you the flexibility of a variable rate loan and the stability of a fixed rate loan. One part of your loan will remain fixed and unchanged by interest rate fluctuations, while the other part will be affected if interest rates rise or fall.

How you choose to split your loan is up to you and your unique situation. For example, you may choose to fix 25% of your loan and leave the remaining 75% at a variable rate. Or you may want to split it 50:50. Whatever your choice, you must ensure you are able to meet the minimum fixed rate repayments, as per your loan agreement.

What are the benefits of a split loan?

There are a number of benefits to choosing a split home loan including:

  • If rates go up, your repayments won’t change for the fixed portion of the loan

  • Ability to make extra repayments on the variable portion

  • Ability to connect an offset account or redraw facility to the variable portion

Are there any disadvantages to a split loan?

While it may seem like you’re getting the best of both worlds with a split home loan, there are some disadvantages:

  • Some lenders will restrict your ability to repay the loan early

  • The fixed portion can come with fees for extra payments

  • If you currently have a fixed rate home loan, it’s likely you will need to break out of your contract in order to split it, which can also incur a fee. If in doubt, chat to a Home Loan Specialist to discuss your options.

  • If interest rates decrease, you’ll only experience the benefits from the variable portion of your loan. The fixed rate portion will remain unchanged.

What are the main differences between a split loan and a fixed and variable rate home loan?

With a fixed rate home loan, your repayments are locked in at a certain, unchangeable interest rate, usually for a period of 1-5 years. While this can offer welcome stability in a fluctuating market, it also means you won’t reap the benefits of interest rate drops, or be able to make extra repayments without fees, unless you refinance.

By comparison, variable rate home loans are much more flexible. Your monthly repayments will go down if the interest rate drops, but by the same token you’ll have to pay more if the interest rate rises. You also have the option of making additional and early repayments on your home loan without having to pay additional fees in order to do so.

If you think a split rate home loan sounds right for you, speak to a Lendi Home Loan Specialist today.

Important legal stuff
Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 25 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria. Top rates include lenders who are on our panel and are then defined by the circumstances provided by the borrower.
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