In two minds about your home loan rate? Split it!

Torn? Divided? In two minds about your home loan rate? Most Australians like having options, but when making a decision on something as important as a home loan we can feel awfully pressured to make the right decision.

Fixed or variable interest rates are the two options that usually divide home loan lenders. Fear of ‘what if’ can kick in and trying to predict the Australian property market can be almost impossible. Borrowers can be locked into a war of thoughts, concerned if they lock in a fixed home loan the interest rates will drop and they will be unable to reap the benefits. Or alternatively, they don’t fix the rates when they are low and soon find themselves with a variable rate that keeps rising with the current interest rate increases.  Perhaps a split home loan may be just the option for home loan borrowers, and fence-sitters alike. 

A split home loan allows you to divide your home loan into variable and fixed rate portions. It is up to the borrower as to what percentage they want to allocate to each type of loan. For instance, someone with a $300,000 mortgage may decide to allocate 40 percent to a fixed rate ($120,000) and the other 60 percent to a variable rate ($180,000).

By splitting your mortgage, you will be taking less risk and protecting yourself against any possible rate increases compared to if you decided to choose a variable loan. And splitting could reduce the impact of missing out on savings if rates fall because you are not locking your whole loan into a fixed rate, only a portion.

If the market is unstable or if borrowers are unsure of whether to fix their home loans or not, they may benefit from a split home loan.

How you could get the most out of your loan should you choose to split it.

• Decide what percentage you would like to fix and how much to allocate to variable. For instance, you may like to split your loan evenly, with half at variable and half with a three-year fixed rate, that way if rates were to rise at least they will only affect half of your loan.
• Try and make additional repayments if you can. Not only will you pay less in interest but you may also cut years off your mortgage.
• Check to see if there are any fees involved. Because you will essentially have two loans you may be lumped with higher fees. Look out for loans with a lower setup as well as ongoing fees so that you can save more.
• You can choose to split more than once but be careful as this could cost you a fee.
• Also be aware that you may not have to use the one financial institution for both parts. That way you can shop around and find loans that offer a lower rate.

If you think that you could benefit from a split home loan, compare home loans online to see which loans have the split loan option available.

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