Split Home Loan

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Split home loans

Make the most of both fixed and variable-rate home loan features with a split mortgage where you can have part of your home loan on a variable rate and the rest on a fixed rate basis.

About Split Home Loans

It may seem that choosing between a fixed and variable home loan is rigid, it’s either one or the other. However, there is a third way and it allows you to combine the best features of both loan types. A split loan allows you to have a portion of your home loan with a fixed interest rate and the remaining portion with a variable interest rate. You have the option of selecting the percentage you would like fixed and the percentage you would like variable. Split loans all help reduce the impact of interest rate changes. It will be a worthwhile exercise to consult with your mortgage broker. Split home loans for owner occupied loans, as well as investment loans, are very handing when you require the safely of a fixed rate home loan as well as the flexibility to make large payments and redraw large amounts (have your cake & eat it). Mortgage brokers can recommend: 50% fixed and 50% variable for example or any other combination like 80% fixed and 20% variable. Later on, as a fixed rate comes to an end, your mortgage broker will be able to change the percentages to meet your needs at that moment. Another instance where a split loan can be handy is when part of your home loan is not tax deductible and another investment loan portion is tax deductible to keep every separate and easier to manage. Hint: Your accountant will love it… Another handy use of split loans is unequal ownership. Just say a borrower owns 80% of the property and the other borrow owns 20%. Your mortgage broker can set up two separate home loan splits for each to pay down as fast as each party desires.

Advantages

Enjoy fixed rate security as well as the ability to pay off the variable portion of your mortgage sooner & save interest

Access features that only come with variable interest rate home loans, such as a line of credit and construction drawdown home loans

Have the ability to change your split percentages once a year for free, which offers you extra flexibility.

Disadvantages

You may incur additional fees if you make additional repayments over $20,000 per year or break the fixed portion of your home loan

You won’t receive the full benefit of interest rate reductions that a variable home loan provides

You may incur additional fees for changing the split ratios more than once a year.

It is important when using a split loan calculator with your mortgage broker to make sure
you have as much information as you can, and that the information is as accurate as possible. Calculators such as
these are a great way to be able to get a full picture of how much the repayments will be, both for the variable and
fixed part of your loan. As expected, they can also give you & your mortgage broker an idea of how much interest
you will pay across the life of your loan. Simply put in the loan amount, when the payments will be made, how long
the loan is for, and the interest rates. Your mortgage broker has a range of calculators to help you take the steps
to buy your new home, new investment property, or simply refinance your current home loan. You can work out what
your mortgage repayments can be, and even how much you may be able to borrow. Your mortgage broker can calculate the
best rates for your split loan, and we also have a calculator that can help make decisions about switching loans
easier. Connect with your professional mortgage broker if you are unsure how you are going to afford a house
deposit, they can even let you know how much stamp duty you are likely to pay on your new property
As we detailed above, you have some flexibility when it comes to a split home loan. If you
want to have half your loan fixed and half your loan variable, then you can. If you want 80/20, 70/30 or even 90/10,
you can. You get the picture. Speak to your mortgage broker about what ratio might be best for you, and what you
think you can afford. But there are lots of advantages to splitting home loan rates. Obviously, having the security
of a fixed rate, and the ability to pay off a variable portion is a big benefit. Most variable loans allow you to
make extra payments without fees. This can save you thousands in interest over the life of your loan. And there are
often more features with variable loans than there are with fixed rate loans, including lines of credit and offset
account opportunities. And a lot of split mortgages allow you to change your fixed and variable ratio a number of
times. This can offer you a fair bit of flexibility, and the peace of mind of knowing that if your circumstances
change, you may be able to adjust your loan. However, you may have to pay additional fees.
As we mentioned above, split mortgages aren’t really individual loans, but are features of
existing loans. As such, there is a lot to consider when finding the best option for you. There really isn’t one or
two loans that stand out from the rest, as a result. So, when you & your mortgage broker are looking for the
best option for you, make sure you take into account all the other features and fees and charges of the loan.
Obviously, the interest rate is a good place to start. As is whether or not the loan has an offset option, and
whether there is a minimum amount you are allowed to borrow. The next thing to consider & seek advice from your
mortgage broker is whether there are features such as redraw facilities and whether you are allowed to make
additional payments.
The first thing to remember about repayments for split mortgages is that additional
repayments for the fixed rate portion of the loan can attract fees. It can be difficult to put all the variables
together when working out the repayments. Not only do you need to make sure you can afford the payments, but you
& your mortgage broker need to calculate between both variable and fixed interest rates and payments. However,
there are a lot of advantages to having a split loan, and your mortgage broker will want to make it work for you.
There can be advantages in choosing to split your fixed rate home loan. Firstly, a home loan
with a split rate feature can allow you to access more flexibility. Variable rate loans can include extra features
and extra flexibility within those fixtures. With a split loan, you can choose what percentage of your mortgage you
want to be fixed, and what percentage you want variable. A fixed interest rate mortgage can give you the security of
knowing what your repayments can be, but having a split option means you may be able to take advantage of any drop
in interest rates. You may have your mortgage for 30 years or more and no one knows what your financial situation or
the situation of the world’s economy will do over that time. So having access to variable rates can give you the
benefit of extra flexibility. Some fixed rate mortgages can also penalise you financially for making extra
repayments over $20,000. If that’s the case, having a split loan can allow you to make those extra repayments
without being penalized, your mortgage broker will know what to do. Extra repayments mean you pay less interest,
which can save you thousands over the life of the loan.
While a variable rate loan is a type of loan that can give you extra flexibility, the fact
that repayments can increase or decrease, depending on a range of external and internal factors, can raise some
budget concerns. If you are unsure whether or not your budget can handle too many increases in a variable rate home
loan, then the security of knowing exactly what your repayments will be is attractive, best to sit down with your
mortgage broker. A split loan can give you the option of doing that. Under the fixed rate part of a split loan, the
interest rate will stay the same for the agreed period, for example, 2 years. That means for up to 2 years your
mortgage repayments under the fixed rate part of the loan will stay the same. So, while a variable rate home loan
can give you a lot of flexibility, a split home loan can give you even more.
A mortgage calculator is a good way to calculate repayments for a split loan, your mortgage
broker will have the latest & most accurate mortgage repayment calculators. Some banks and lenders will have
split mortgage calculators online, while other versions of a regular repayments mortgage calculator can do a similar
job. A split loan calculator will show you what the repayments of the fixed interest rate mortgage will be per
month, as well as what the variable rate repayments will be. Generally, both the fixed and variable rate repayments
will be made at the same time, at the beginning of the life of the loan. A split rate mortgage calculator will give
you both a combined repayment amount for that period, and then a repayment amount once the fixed rate term is over.
Alternatively, you can ask your mortgage broker to work out the percentage of the home loan that is fixed and the
percentage that is variable, and run it through. From there, all they need to do is add the two repayments together,
which will give you the figure for the fixed term period.
Working out what the fees for a split loan are can be difficult as you will likely be
dealing with two separate loans. Your mortgage broker can go through split loan options with you and look at the
fees and the terms and conditions, which will give you an indication of what the fees and charges can be. As
mentioned above, fixed interest rate mortgages can attract higher fees, especially around additional repayments over
$20,000 per year. If you are not a regular real estate buyer, it can be difficult to understand and compare all the
different fees and charges without the assistance of a professional mortgage broker. A good and quick way to compare
is to look at the difference between the advertised interest rate and the comparison rate. Each bank or lender is
required by law to promote comparison rates for each loan. Comparison rates are designed to indicate the real
interest rate over the life of the loan. It takes into account all the fees and charges to guide you to a
conclusion. Ask your mortgage broker to look at the comparison rates and compare them with your financial situation
and property objectives when you are looking for a suitable split loan.
All different kinds of home loans come with their advantages and disadvantages. Whether it’s
a fixed interest rate mortgage, a variable rate loan, principal and interest or interest only, construction, low
documentation or even family pledge mortgages, when you apply for a home loan, your experienced mortgage broker will
make you aware of all of them. When it comes to a split home loan, you may incur additional fees if you make extra
repayments or pay off the fixed portion of your home loan sooner. Because some of the loans will be fixed, you won’t
receive the full interest rate reductions if the variable interest rate does fall. Some split loans allow you to
change the split ratios a certain number of times. You may be charged extra fees if you change the ratio.