No matter where you are in your home loan journey, a split loan could be an option for you. You may have recently settled on your first home or be halfway through your existing loan and want to change it up - just check that your current terms and conditions allow it.
Before you make the switch to split, explore the benefits of a split loan and find out if it’s right for you and your lifestyle.
What is a split loan?
To understand split loans, let’s get to know what a fixed home loan offers compared to a variable home loan.
A fixed home loan means that your interest rate will be locked in for a fixed period of time (at People’s Choice, you can choose between 1-5 years). Your repayments during this time will stay the same, which can be helpful for budgeting and peace of mind.
Choosing a fixed home loan does however mean that you’re limited in how many additional payments you can make and your ability to redraw during the fixed loan term. You may also have to pay ‘break costs’ subject to the additional payment amounts made on the loan.
Alternatively, interest rates on variable home loans move in line with rising and falling interest rates. This option comes with both risk and reward, as you may see your repayments fluctuate depending on what’s happening in the market.
Variable home loans often come with greater flexibility, such as being able to make additional repayments on your loan, open an offset account, and access a redraw facility.
And then there’s a split loan – this gives you the best of both worlds by choosing a fixed interest rate for a portion of the loan amount and a variable interest rate for the rest.
How does a split loan work?
If you’ve decided a split loan is right for you, you can work together with your Home Loan Adviser to determine your fixed vs variable loan split based on current interest rates and your budgeting needs.
Example of a split loan:
You have a home loan of $500,000 and decide to split this amount into fixed and variable rate accounts with a 60:40 ratio. From here, your loan will be divided into two loans. A fixed interest rate will apply on $300,000 for a fixed term, and the remaining $200,000 will have a variable interest rate applied.
You can find our current home loan rates here.
Benefits of splitting a home loan with People’s Choice
Enjoy more flexibility
Get ahead of the curve with the ability to make unlimited extra repayments on the variable portion of your split loan, meaning you could pay off your home loan sooner.
You can also open an offset account which is a separate transaction account that you can link to your home loan. The money you have in this transaction account offsets the amount of interest you pay on the variable portion of your split loan.
At People’s Choice, you will have access to a redraw facility on your variable loan amount, meaning you can withdraw additional payments if you need to.
Security with fixed repayments
Having a portion of your loan secured with a fixed interest rate means that your repayments on that portion won’t feel the sting of any rising interest rates. Keep in mind this also means that if interest rates drop, you won’t have the flexibility to change your repayment amount until your fixed loan term is up (without paying break costs).
Benefit from interest rate drops
While your fixed loan amount sits securely with a set rate for the duration of its term, your variable portion will move with the market. The good news here is that you can take advantage of interest rate drops with lower repayments on this portion of the loan. This also comes with the added risk of higher repayments if interest rates rise.
Should I split my home loan?
When deciding if you should split your home loan, here are some things to consider:
- What features are important to you in a home loan? Some features to look out for are fixed repayments, flexibility to make additional payments, an offset account or a redraw facility. It helps to work out what home loan features are most important to you when deciding if a split loan is right for you, as well as how you’d like to divide your amounts into fixed and variable rate accounts.
- Your lifestyle and financial circumstances. Your home loan is there to help you live life to the fullest, not hold you back. Think about what the future holds and how this will impact your home loan repayments, like how long you can commit to a fixed loan term.
- Review and understand the fees and charges. When you choose a home loan make sure to check the fees, such as an application fee, any ongoing fees and potential break costs. We have a range of tools and home loan calculators including our buying costs calculator and stamp duty and land tax calculator which can help with calculating fees.
- We’re here to help. Whether you’re wanting to apply for a split loan or just explore your options, a Home Loan Adviser can review your needs and the various split loan options.