Split Rate Home Loans

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Split Rate Home Loans are utilised by those borrowers who want to guard against rising interest rates, but at the same time are willing to assume a portion of the risk. This type of home loan can be split 50/50, split 60/40, split 70/30, or in a number of other ways. The loan is split into two parts, where one part has a fixed interest rate and the other part has a variable interest rate. It is really like having two separate loans for the one property.

The split rate loan provides peace of mind knowing that part of the monthly repayment is a fixed $ amount and will not rise, and the other part of the repayment allows the flexibility of making additional payments when extra money is available to put into the home loan.

As there are two parts to this loan to consider, lets first consider the fixed interest portion of the loan. With any fixed interest rate loan, if interest rates rise, the borrower saves. However, if interest rates fall, the borrower ends up paying a higher rate than the official interest rate. This is the chance one takes when locking in a fixed rate. 

One of the major benefits of having a split rate home loan is that the borrower can hedge some of the risk against interest rates rising. The fixed interest part of the loan gives some certainty to the monthly home loan repayment. At least the borrower knows that the home loan repayment for the fixed interest rate portion of
the loan cannot be increased during the fixed rate term.

The floating or variable interest part of the loan provides flexibility with many of the add on features offered by a variable interest rate home loan, such as repayment flexibility, a redraw facility and an offset account. Although these features are good to have, the variable interest part of the loan is vulnerable to a rise in interest rates.



Here are some of the Pros and Cons of a Split Rate Home Loan.

Some Pros
-The fixed interest part of the split rate loan provides some hedge against rising interest rates
-Combine the added features of a variable rate loan together with certainty of a fixed rate loan
-Peace of mind in knowing that the fixed interest part of the split rate loan is fixed and cannot go up is combined with the flexibility of the variable rate part of the loan



Some Cons
-Over time, generally fixed interest rate loans can cost more than variable rate loans
-The fixed interest rate remains locked in even when official interest rates in Australia fall
-The variable interest part of the split rate loan is at risk of a rate rise
-High early exit fees on fixed rate portion of the split rate loan






Why not have a Professional Home Loan Mortgage Broker come out to discuss your needs. We are friendly and helpful and will work hard for you.  We are based in Sydney NSW and cover most suburbs in Sydney.



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Pros and Cons of a Split Rate Home Loan

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