Loan splitting

The ability to split a home loan into multiple loans that allows for a combination of both variable and fixed rates.

If you are unsure whether to go variable or fixed loan then a split loan is something to consider.

Split loans are a combination of variable and fixed rate loans. You can have a percentage of the loan as variable while the other percentage fixed. You can have half fixed and half variable, 70% variable and 30% fixed or any combination you prefer.

These loans are for borrowers who want to hedge their bets. They give the borrower the flexibility of a variable loan and the security of a fixed loan. Generally, taken out when the direction of interest rates are rising or when they have no clear direction.

Benefits of Split Loans

  • Having part of your loan fixed protects against interest rate rises
  • If interest rates fall you also get the benefit of lower mortgage repayments
  • Additional repayments can be made into the variable portion as most lenders do not allow for extra repayments into fixed rate loans
  • Ability to use an offset account and redraw facility with the variable portion of the loan

Negatives of Split Loans

  • Cost of two loans may incur unnecessary fees such as set up and ongoing fees
  • Paying or exiting the fixed loan early can incur break fees

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