Split home loans give you a mixture of variable and fixed rates on your home loan, allowing you to take advantage of the benefits of both. A fixed interest rate loan gives you a specific predictable repayments, and leave the remainder set at a variable interest rate, to get benefits when interest rate goes down.
The ‘split loan’ option is a comfortable solution between the pros and cons of fixed and variable interest rate loans. A split mortgage allows you to enjoy the benefits of both the security of fixed rate loan and the flexibility of a variable interest rate loan.
If you don’t know if interest rates are going to go up or down, a split home loan allows you to hedge your risk. If they go up, you’re tied into the lower current interest rate. If they go down, you’re in a position to take advantage of those lower rates.
Fixed vs Variable Home Loan
Fixed rate portion offers rate and repayment security and can predict repayments.
Even though the cash rate rises, your payments will not go up. You always have to pay the same amount of money.
The disadvantage is that you cannot make extra repayments. This means that you cannot pay off your home loan faster. If rates drop substantially, you will not get any benefits from lower interest rate.
You have repayment flexibility. You can make extra payments.
The ability to link one of the loans to a 100% mortgage offset account
When interest rates go down, you reap the benefit with a variable rate loan.
The biggest downside to variable home loans is the risk with higher repayments. If rates rise, you’ll face to make higher monthly payments.