A split home loan divides one borrowing amount into a fixed-rate portion and a variable-rate portion. The borrower chooses the dollar amount or percentage assigned to each side. The fixed rate applies for a stated term and then moves to a revert product. The variable rate can change under the lender’s terms. This structure combines some repayment certainty with access to selected variable-loan features.
The proportions should reflect the borrower’s budget, expected extra repayments and need for flexibility. A 60:40 split is only an illustration. Compare both rates and confirm the extra-repayment limit on the fixed portion, where any offset applies, how break costs are calculated and which product follows the fixed term. Record the dollar amount of each portion and diary the fixed end date so the client can review the revert product before it applies.
Eliminate hours of manual data crunching and focus on building relationships with new clients.
Track My Trail makes it easy for brokers to keep track of lost & gained trail, discover clients who have paid off big chunks of their loans, and identify your most profitable clients.
Get Track My Trail for free today – no credit card required.
What Is a Split Home Loan?
The lender sets both interest rates and records each portion as a separate loan account under the same facility. The variable portion can move when the lender changes its standard variable rate. The fixed portion remains at the contracted rate until its expiry, subject to the loan terms. A 50:50 split is not automatically balanced for the client because the right proportions depend on cash flow and planned repayments.
Understanding Split Home Loans
The fixed repayment supports budgeting during the selected term. Once it expires, the payment can change with the revert rate. Extra repayments and additional repayments are often capped on the fixed portion, while the variable side may accept more. A redraw of extra repayments is treated as a further borrowing for tax tracing under ATO TR 2000/2. Money withdrawn from an offset account remains the borrower’s own funds.
Benefits of Choosing a Split Home Loan
A fixed portion keeps that part of the repayment known for the selected term. The variable portion can benefit if the lender reduces its rate and may allow larger extra payments. An offset account often links only to the variable portion, so its balance may not reduce interest on the fixed side. Confirm the offset percentage, eligible account and repayment rules in the offer rather than assuming both portions share every feature.
How to Qualify for a Split Home Loan
The same income, expense and serviceability assessment applies as for a single-rate loan. The lender also checks the loan-to-value ratio, deposit and credit score. Lenders mortgage insurance may apply at higher LVRs under the chosen policy. A mortgage broker can run the application process and compare split options across their accredited panel. Approval covers both portions together rather than treating them as unrelated loans.
Strategies for Managing a Split Home Loan
Direct planned extra repayments to the variable portion when the loan terms allow it, and keep the fixed cap visible. Review the arrangement before the fixed term expires so the borrower can compare the revert product with new options. refinancing or selling during the fixed term can trigger a break cost. The fixed amount should therefore reflect the client’s likely time in the property and expected need for flexibility.
Potential Drawbacks and Considerations
The variable portion can become more expensive when the lender changes its rate, even if the Reserve Bank cash rate does not move. The fixed portion will not benefit from a rate reduction during its term and may cost more to exit early. Managing two account balances also requires care when making extra repayments. Compare the combined cost and features with a fully fixed or fully variable alternative.
Additional Considerations for Split Home Loans
Calculate the household surplus at the expected revert rate before the fixed end date. Review any package fee across both portions and confirm whether closing one account changes the remaining discount. For an investment property, keep clear records of how redraws from each portion are used because interest deductibility follows the use of borrowed money. Broader investment or tax advice may require a separately authorised adviser. A conditional lending decision remains subject to the stated conditions for the whole split facility.
Exploring Alternatives to Split Home Loans
A fully fixed loan gives the borrower predictable repayments for the fixed term and protects the whole balance from rate rises during that period. In return, it may limit extra repayments and can create break costs if the borrower sells or refinances early. A fully variable loan usually offers more flexibility for extra repayments, redraw or an offset account, but the entire repayment can change when the lender changes its rate. Either can be a better choice than a split when the client values one set of features more than a compromise. Compare the fees, repayment behaviour and exit costs of all three structures before selecting the split proportions.
