Split Rate Home Loans

Understanding split rate loans

Split rate loans divide your home loan between fixed and variable rate portions, allowing you to enjoy benefits of both loan types while reducing exposure to interest rate volatility. This strategy provides a middle ground for borrowers who want some payment certainty without sacrificing all flexibility.

How split loans are structured

With a split loan, you choose what percentage of your total loan amount is fixed versus variable. Most lenders allow you to split in any proportion, though some have minimum amounts for each portion.

• Choose your preferred split ratio (e.g., 50/50, 70/30, 80/20)
• Fixed portion locks in rate for chosen term (1-5 years typically)
• Variable portion fluctuates with market rates and lender decisions
• Each portion may have separate account numbers or sub-accounts
• Can often have different features available on each portion

Popular split strategies

Different split ratios suit different borrower needs and market outlooks. The right split depends on your risk tolerance, budget flexibility, and expectations about future interest rate movements.

50/50 split approach: Provides equal protection and flexibility, suitable for borrowers who are uncertain about rate direction and want balanced exposure to both rate scenarios.

70/30 variable-dominant split: Maintains mostly flexible benefits while providing some payment certainty, ideal for borrowers who expect rates to fall but want some protection.

70/30 fixed-dominant split: Offers mostly predictable payments with some upside potential, suitable for budget-conscious borrowers who still want some rate flexibility.

Benefits of split rate loans

Split loans offer several advantages over choosing purely fixed or variable options, particularly for borrowers who want to hedge their interest rate risk.

• Reduced payment volatility compared to fully variable loans
• Maintain access to some flexible features through variable portion
• Partial protection against interest rate increases
• Can benefit partially from interest rate decreases
• Customizable approach based on individual risk tolerance and circumstances

Available features and limitations

The features available on split loans depend on how lenders structure these products, with variable portions typically offering more flexibility than fixed portions.

Typical features on variable portion:

• Offset account facilities for interest savings
• Unlimited extra repayments without penalties
• Redraw facilities for accessing surplus payments
• Rate discounts and competitive pricing

Typical limitations on fixed portion:

• Limited extra repayment allowances (often $10,000-$20,000 annually)
• No offset account benefits on fixed portion
• Break costs apply if making major changes
• Less competitive pricing than standalone fixed loans

Managing split loan complexity

While split loans offer strategic benefits, they do require more active management and understanding compared to single-rate loans.

Managing two different rate types requires understanding separate terms, conditions, and payment calculations for each portion. Regular review ensures your split ratio remains appropriate as circumstances change.

Refinancing and restructuring options

Split loans provide flexibility to adjust your strategy over time, particularly when fixed portions expire or when refinancing to take advantage of better market conditions.

• Change split ratios when refinancing or at fixed rate expiry
• Convert portions between fixed and variable as market conditions change
• Consider current interest rate environment when restructuring
• Evaluate whether split approach still meets your needs and circumstances