A split home loan divides one borrowing into fixed and variable portions. The fixed portion gives repayment certainty for a selected term, while the variable portion can accept extra repayments or use an eligible offset account.
Choose the proportions around the repayment your budget needs to lock and the amount you expect to repay early or offset. A larger fixed share gives more certainty but leaves less debt available for those variable-loan features.
How a Split Home Loan is Set Up
A split home loan keeps the borrowing under one facility, with separate accounts for the fixed and variable portions. You choose a dollar amount or percentage for each account, subject to the lender’s product rules.
For example, a $500,000 loan split 60:40 has $300,000 fixed and $200,000 variable. A 50:50 split puts $250,000 in each account. These are illustrations, not default recommendations. The useful split depends on how much repayment certainty you need and how much debt you expect to repay early.
How the Two Portions Behave
The fixed portion has a contracted rate and a known repayment for the selected fixed term. At expiry, it moves to the lender’s stated revert product unless you arrange another option. The repayment can then change.
Extra repayments on the fixed portion are capped under the lender’s terms. Exceeding the allowance can trigger a cost. The variable portion follows the lender’s variable rate and can allow extra repayments and redraw under its own rules.
A redraw of extra home-loan repayments is a new borrowing for tax purposes. The ATO explains this in Taxation Ruling TR 2000/2. Interest deductibility depends on how the redrawn funds are used. Withdrawing money from a separate offset account uses your own funds.
Benefits of Choosing a Split Home Loan
A split home loan locks the repayment on one portion while keeping the other available for extra payments. If the lender cuts its variable rate, the variable portion can benefit. The fixed portion retains its contracted rate.
An offset account often applies only to the variable portion. For example, CommBank’s Everyday Offset links to eligible variable loans. NAB’s fixed and variable comparison lists offset access for its variable product and none for its fixed product.
That means offset savings reduce interest on the eligible variable account, without reducing interest on the fixed account. The offer identifies the eligible account and offset percentage.
How to Qualify for a Split Home Loan
Choosing a split does not relax the lender’s serviceability, loan-to-value ratio (LVR) or credit assessment. For a new loan, the lender assesses income and expenses, existing debts and the property securing the total borrowing.
The deposit and any lenders mortgage insurance requirement follow the selected lending policy. One approval covers both portions. A mortgage broker can compare eligible split products across their accredited panel and explain the conditions that apply to the whole facility.
Choosing the Split Proportions
Fix the share whose repayment your household budget needs to lock. Leave variable the share you expect to repay early or cover with offset savings during the fixed term.
- Work out the repayment your budget can commit to throughout the proposed fixed term. Use the offered fixed rate and loan term to calculate the corresponding fixed balance.
- Estimate the extra repayments you expect to make during that period. Add savings you expect to keep in offset, counting each dollar once.
- Leave enough on the variable side for that plan, with room for its balance to fall through scheduled repayments. Test the combined repayments if the variable rate rises.
- Compare the resulting split with your budget. If the desired fixed balance leaves too little variable debt for your savings plan, reconsider the proportions or fixed term.
As a hypothetical example, a borrower with a $500,000 loan expects to keep $40,000 in offset and make $60,000 in separate extra repayments. A $100,000 variable portion is a starting point for that plan, leaving $400,000 fixed. That 80:20 split still needs room for scheduled repayments and a check of the combined repayment against the household budget. To get the combined repayment, run each portion through the mortgage calculator at its own rate and remaining term, then add the two results.
Direct planned extra repayments to the variable portion when the loan terms allow it. Keep the fixed repayment cap visible and review the arrangement before the fixed term ends.
Potential Drawbacks and Considerations
A split home loan leaves the variable portion exposed to rate rises. The lender can change that rate even when the Reserve Bank cash rate stays unchanged.
The fixed portion misses rate cuts during its term. Selling, refinancing or repaying that portion early can trigger a break cost. The fixed-rate mortgage guide explains fixed terms and break costs in more detail.
Two balances also need separate attention. Sending an extra payment to the wrong account can use the fixed allowance while leaving the variable balance unchanged. Record each account number and its repayment instructions when the loan is set up.
Additional Considerations for Split Home Loans
Calculate the household surplus at the expected revert rate before the fixed term ends. Include the variable account’s repayment and all ongoing fees so the budget covers the combined commitment.
Package charges depend on the lender and product. CommBank’s Wealth Package has a $395 annual fee and covers eligible fixed and Standard Variable Rate loans. NAB’s existing Choice Package also has a $395 annual fee for included eligible products, but is closed to new packages. NAB’s Tailored variable loan with offset instead lists a $12 monthly fee.
Compare the package fee across the facility alongside account charges. Record which portions receive discounts and whether closing one account affects the remaining benefits.
For investment borrowing, keep records of the original use of funds and each redraw from either portion. Mixing private spending into an investment loan can require interest apportionment under TR 2000/2. A tax adviser can apply those rules to your records. Any conditional lending approval still requires the conditions for the whole facility to be met.
Exploring Alternatives to Split Home Loans
A fully fixed loan suits a borrower who needs repayment certainty across the whole balance during the fixed term. A fully variable loan keeps the whole balance available for the variable product’s repayment and offset features.
| Structure | Repayment Behaviour | Fees and Exit Costs |
|---|---|---|
| Split fixed and variable | Only the fixed portion has repayment certainty. Extra payments usually go to the variable portion. | Compare package and account charges across both portions. Breaking the fixed portion early can incur a cost. |
| Fully fixed | The contracted rate applies to the whole balance during the fixed term. Extra repayments are limited by the product terms. | Include ongoing fees and any break cost for early repayment or refinancing. |
| Fully variable | The whole repayment can change. Extra repayments, redraw and offset depend on the selected product. | Compare ongoing fees and discharge costs. Fixed-rate break costs do not apply. |
The variable-rate mortgage guide explains how variable rates move. Choose a split only when the certainty on the fixed share and flexibility on the variable share fit your repayment plan after fees.
